Dealers abandon market-making when forced selling cascades

Evidence

As people were forced to sell, that drove the prices even further down. Market makers quickly became overwhelmed, where the dealers, who would [normally] be willing to buy or sell those positions were simply unwilling to do it, and they either said just go away: I’m not answering my phone’ or set their prices at ridiculous levels. — Donald MacKenzie, An Engine, Not a Camera, 1051

Categorization

• SHARE: The vivid detail about dealers refusing to answer their phones during the 1998 crisis is worth sending to anyone who trades or studies market microstructure.
• XREF: connects to: A small trigger can unravel large systems of overlapping arbitrage positions through forced selling — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 156; Limited arbitrage capital can force abandonment of even certain-profit trades — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1217

Broader Connections

• A small trigger can unravel large systems of overlapping arbitrage positions through forced selling #expands (0.95) — Donald MacKenzie, An Engine, Not a Camera, 156
• Limited arbitrage capital can force abandonment of even certain-profit trades #exemplifies (0.92) — Donald MacKenzie, An Engine, Not a Camera, 1217