Trading was halted 1,200 times Monday

24-Aug (CNNMoney) — The selling on Wall Street was so dramatic Monday that it triggered unprecedented emergency freezes on stocks.
Stocks and exchange-traded funds were automatically halted more than 1,200 times, according to Nasdaq.

The high level of trading pauses highlights just how extreme the selloff was in a short span of time. Fears about China’s economic slowdown caused the Dow to plummet over 1,000 points when the market opened. The Dow ended down 588 points, its worst decline since August 2011.

…But a closer look at the securities that were halted also raises questions. The circuit breakers were implemented more than 600 times on ETFs, the increasingly-popular securities that trade like stocks. ETFs hold a basket of stocks, removing the risk of betting on a single company.

ETF.com examined the pricing action and discovered at least eight ETFs that showed “flash-crash” style drops at the opening of trading.

…Yet other ETFs that experienced panic selling are far larger and wouldn’t be expected to have that kind of turbulence. For example, the iShares Select Dividend ETF (DVY) plummeted as much as 35% at its lows.

That’s a stunning move considering this BlackRock (BLK)-backed ETF is worth over $13 billion and is focused on stable American stocks that have a long history of paying dividends.

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PG View: Illiquidity in ETFs during a market rout? That should be an eye-opener for every investor, warranting a reexamination of your portfolio diversification. Do you have enough physical gold?