About 4,000 trades were broken on Thursday after being identified as clearly erroneous as per exchange rules, Mr. Niederauer said, and the wild fluctuations were certain to prompt more scrutiny of high-frequency trading from regulators.
"We as an industry have to say how much is too much of this technology," Mr. Niederauer said.
"This was a massive liquidation panic," said Bill Strazzullo, chief market strategist for Bell Curve Trading, a Freehold, N.J., technical-research firm.
As the losses accelerated, there were little to no "buy" orders left in many stocks and other assets, causing a plunge that saw some securities spiral to near zero. "You just blew through everything," he said.
A number of high-frequency firms closing down in the midst of a sharp market drop can "widen markets out substantially," said Jamie Selway, managing director of New York broker White Cap Trading.
High-frequency firms have in recent years become central to how the market operates, growing to account for about two-thirds of daily market volume, according to industry estimates.
The firms use high-powered computers to send "buy" and "sell" orders to the market at rapid speeds. High-frequency traders have said part of the value they add to markets is the liquidity they bring—being at the ready to swiftly complete a trade. Some of these firms have said that, were it not for them, the 2008 market declines would have been worse.
When I started my second company, in 1988, also in Silicon Valley -- the industry was approaching a level of maturity that, in tech, warns of a looming implosion. I was too young and inexperienced to know this, but the signs were everywhere. A few years before if you had a good idea, you could ship a product, promote it, build a user base, and find liquidity. Now the dominant companies had grown so big they were starting to choke the ecosystem. And the entrepreneurs who were showing up were less the bright-eyed engineers with big ideas, and more of the carpetbagging MBAs with pyramid schemes. Gotta say the VCs typically went for the MBAs. The era of the engineer, if it wasn't over, was certainly waning.
All of these things are vying for attention and evangelism. Some of them are great, some of them are stupid, but they’re all clubbed together under this vague banner of ‘The Open Web’. It sets expectations and demands from developers, who are all the while being wowed by the efficiency and quality of proprietary application frameworks like Flash and Cocoa.
Scribd co-founder and chief technology officer Jared Friedman tells me: “We are scrapping three years of Flash development and betting the company on HTML5 because we believe HTML5 is a dramatically better reading experience than Flash. Now any document can become a Web page.
They are hoping they will put it behind them," said Matt McCormick, portfolio manager at Bahl and Gaynor. "They will have an actionable event. The costs will be defined. The risks will be quantified, and then they can go back to making money.
When Flash is gone, this overly aggressive marketing will simply be foisted upon you using more “open” technologies like HTML5. And guess what? It’ll be harder to block because it looks more like content than Flash does.