The SEC’s Division of Trading and Markets recently released an analysis of the volatility in equity markets that occurred on August 24, 2015. The report is offered “as a preliminary step to help inform a public assessment of the operation of U.S. equity markets under stressed conditions,” but offers no conclusions. The report notes that the first 15 minutes of trading that day brought higher than normal volumes, while displaying typical factors of being the “least liquid portion of the trading day, with wider spreads, less quoted depth, and higher volatility.”
According to the report, for individual listed companies, the volatility most heavily affected companies with a market capitalization of over $100 billion, which saw trading volumes 400 percent higher in the first 15 minutes of trading than control periods and more than half saw price declines of 10 percent or more. Exchange Traded Products (ETPs) as a class were more substantially affected than individual companies, but the impact was varied. ETPs with market capitalizations of more than $10 billion (excluding the SPDR S&P 500 ETF Trust (“SPY”)) saw volume spikes of more than 400 percent and ETPs with market capitalization under $10 billion saw spikes of more than 800 percent. While a majority of ETPs saw price declines of less than 10 percent (which the report calls “consistent with broad market declines” that day), almost 20 percent saw price declines of 20 percent or more. The report also notes that the impact to similar products was not uniform. For example, SPY traded at a premium until 9:37am, while the iShares Core S&P 500 (“IVV”) traded at a discount until 9:43am.
The report also highlights the NYSE’s delay in opening many S&P 500 companies, causing the S&P 500 Index (“SPX”) to rely on closing prices from the previous day instead of reflecting more volatile current prices in the underlying securities. The stale prices caused SPX to decline by only 5.2 percent from the previous day’s close, short of the 7 percent trigger for a market-wide halt. During the same period, SPY declined 7.8 percent while its NAV represented an 8 percent decline. However, 1,278 Limit Up-Limit Down trading halts were triggered, including 1,058 halts in 327 ETPs.