How Circuit Breakers Can Let Cooler (Human) Heads Prevail

Doreen MogaveroRegulators still don't know what caused the flash crash on May 6, but their pilot program of putting circuit breakers on a bunch more stocks goes into full gear this week. Circuit breakers, which are essentially time-outs for traders, were already in place on the New York Stock Exchange (NYX) when the market did its thousand-point swing back in May, but that didn't stop about 50 other electronic market centers from running amok in a digital temper tantrum.

That's partly why the NYSE still has actual people working on a real, live trading floor. A simple manual cross-check of prices can help mitigate volatility "if things get out of whack," says Doreen Mogavero, CEO of Mogavero Lee & Co., in a video interview from the floor of the NYSE (see below). Mogavero, who happens to be a human being and head of floor trading at the broker/dealer she founded 21 years ago, says additional circuit breakers are to be welcomed in a world where machines churn trades in nanoseconds.

"We can go two ways," Mogavero says. "Either everyone can stop trading at the same time, or everyone can trade continuously. Our belief is that if you take a short, brief period of time and stop, price discrepancy gets mitigated by the other side of the trade."



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