The US subprime credit crunch in August blazed across all financial markets setting new records, both in terms of volatility spikes and volumes traded. Indeed, the industry saw three days that exceeded 10 billion shares traded. The Chicago Board Options Exchange’s Volatility Index (VIX) soared past 30 and by the end of the month VIX futures had set three trading records.
While it is too early to draw firm conclusions about the cause and effect of the market volatility, already many are pointing the finger at algorithmic traders as the cause of the rapid, volatile price swings that occurred in even the most illiquid stocks. Moreover, the ability for computer-driven funds to respond to extreme market events is being questioned.
