Dow Jones Computer Glitch Explained
Even though the dow jones constituents are only 30 stocks, they represent some of the most heavily traded stocks in the market. Yesterday the total volume for the 30 DJIA stocks was 740million representing nearly 25% of the 2.4billion shares traded on 2/27.
The total daily average from 2006 for these stocks was 430million shares per day; yesterday there was nearly a 90% increase in the number of shares traded.
However the problem yesterday wasn't that the sheer volume of trades that overwhelmed the computer that calculates the index. I believe that there was some other problem (probably network or database access) on the computer that created a lag between the real index value and calculated index value. The lag in calculation probably began to rise slowly, Once JDIArealized that the DJIA was being incorrectly calculated they failed over to a different computer to calculate the index, this is when they 'drop' happened, the perceived effect was a 200point drop within a minute. Other index calculations at other sites correctly determined the dow jones industrial average index, so i believe this incident was isolated to DJIA's primary index machine.
I'm pretty sure they'll take measures to make sure this doesn't happen again, the psychological affect of the corrected index (perceived instant drop) probably has wide reaching effects.
Too bad they aren't using the same computers and the London Stock Exchange
Update: 4/25
In my original article I incorrectly wrote that it was NYSE's computers which had the glitch. Ray Pellecchia from NYSE contacted me to let me know that this was an incorrect assumption.
However he also mentioned that:
New York Stock Exchange does not calculate or manage the Dow Jones Industrial Average; Dow Jones does. The index issues you cited that day were at Dow Jones, not NYSE.Sorry for the confusion hopefully i haven't tarnished the reputation of NYSE Euronext
That same day, NYSE later experienced some system queuing due to record message traffic. We immediately addressed that problem. The fact that the two things happened on the same day led to some confusion.
Full Disclosure: I am currently NYX shareholder
