After a prolonged period of low volatility, on Monday, February 5 the Dow experienced its largest intraday point drop of all time, ultimately closing down 1175 points or 4.6 percent. The market continued to experience dramatic price swings in a week that saw roughly $3 trillion in market capitalization erased, before prices began to recover.

While these movements were sizable, they were not the largest on record from a percentage point of view. Still, the volatility levels were well above the January average. The return of market volatility provides another timely reminder of the important role of U.S markets, and the vital role that regulated exchanges play in ensuring investor confidence.

During times of uncertainty, the world continues to look to the U.S - and specifically to the NYSE - for information, confidence and liquidity. And here is why:


The U.S. financial markets have evolved considerably over the last two decades. Investors benefit from lower transaction costs and a broader range of available investment products. Conversely, markets are now far more complicated and fragmented. Today, global exchanges operate on exclusively electronic models, except for the New York Stock Exchange, which is the only listings exchange with an active trading floor.

The NYSE has a unique model that consistently delivers the leading market quality to its listed issuers and investors by harnessing technology and human judgment through Designated Market Makers (DMMs) and NYSE Floor Brokers located on the trading floor at 11 Wall Street.

NYSE DMMs are responsible for maintaining fair and orderly markets in the trading of the shares of NYSE-listed companies, and are recognizable as the men and women stationed at fixed posts on the trading floor. They monitor the listed securities they are responsible for, and can deploy their own capital to provide liquidity, minimize market imbalances, create pricing efficiency and dampen volatility. Their trading obligations are more robust than those of the voluntary market makers on all-electronic markets.

NYSE Floor Brokers are recognized on television as the men and women holding handheld devices and moving between the trading posts. They represent investor interest verbally at the point of sale or electronically through their handheld, and use their insight, experience and discretion to execute orders on behalf of institutional, retail and broker-dealer customers.

The NYSE’s unique market model provides value to investors and listed companies every day, but the benefit they deliver becomes even more meaningful during volatile markets.

Last week, as markets became shaky, DMMs increased their share of NYSE liquidity provision by 24%, helping to stabilize the price discovery process.

Notably, on Monday February 5, volatility on the open for NYSE-listed symbols was 38 percent lower and for the close, 44 percent lower, as compared to opening and closing volatility for Nasdaq-listed symbols. Likewise, again on Tuesday, February 6, the NYSE’s DMMs facilitated comparably better results with volatility 40 percent lower on the open and 38 percent lower on the close, as compared to Nasdaq.


Many investors are not aware that up to 40 percent of trading activity never touches a public exchange like the NYSE, but is conducted in private, off-market exchanges or “dark pools” typically run by large financial institutions. Trades that are matched in dark pools often simply reflect the prices that are discovered on lit exchanges, and are then reported to Trade Reporting Facilities. We know that fragmenting liquidity lowers market transparency generally. But we also see that time and time again, when markets become uncertain, dark pool activity declines significantly.

Over the course of the week of February 5th, activity reported to Trade Reporting Facilities (those matched in dark pools) averaged around 31 percent, compared to around the typical 40 percent. When the going gets tough, traders return to lit exchanges to reap the benefits of transparency and price discovery.

We learned lessons and improved market resiliency

Over the past several years, U.S exchanges and the SEC have worked together to implement a range of rules, actions and market mechanisms to moderate the impact of potential price dislocations during periods of volatility.

For example, the NYSE Groups exchanges all have mechanisms in place to reject or reprice orders that would result in a clearly erroneous execution. In addition to these individual order-level price protections, investors are protected from volatility by the “Limit Up Limit Down Plan”, in which market-wide upper and lower price bands for each security prevent a rapid price movement without pause. If a security’s quoted price reaches the limit price band, and stays there, it will automatically enter a paused state on all markets where it’s traded. A paused security will not resume trading until all market interest can be satisfied in the listing market’s reopening auction and the non-listing markets cannot resume trading a security until price bands are in place.

Finally, if the overall market experiences extreme enough price movement, we have in place market-wide circuit breakers, which would halt trading in all securities across all markets.

With all these layers of price protections, investors can be assured that U.S equity markets can perform in a range of market conditions.