Posts Tagged ‘May 6’

Culprit In ‘Flash Crash’ Identified

Monday, October 4th, 2010

How one company broke the Internet stock market.

  • The SEC and FTC just completed their report on the May 6th “flash crash” that resulted in a sudden loss of more than 600 points on the Dow Jones Industrial Average. The market rebounded, but not before a few trader meltdowns.
  • The report says that the crash resulted from a single big trade, which happened to be executed on a day when the market was already unstable due (in part) to fears about European debt.
  • Apparently a large trading company (which the WSJ identifies as Waddell & Reed Financial, a mutual fund company in Kansas) sold tens of thousands of futures contracts using a computer trading program. The sudden sale scared day traders into dumping their futures contracts and further destabilizing the market.

Facts & Figures

  • The DJIA’s 600-point crash was its fastest decline ever.
  • The trade in question involved selling over $4 billion in futures contracts at one time.
  • A total of 75,000 futures contracts were sold.

High-Speed Market Crash Blamed On Impatient Investors

Wednesday, September 29th, 2010

On May 6, 2010, the stock market crashed. For about 20 minutes.

  • No one is exactly sure how it happened, but it had a lot to do with the way electronic trading works (or doesn’t work). After the crash, people began to look carefully at the intended and unintended consequences of digitizing the trading process.
  • High-speed trading systems have made investing cheaper and faster. Wall Street traders demanded greater speed, and SEC and FTC regulators allowed technology upgrades to continue unchecked for a long time.
  • The SEC has been investigating the crash for months and is about to release its official report. As part of that process, the SEC is acknowledging its own role and failings in the regulations leading up to the brief financial meltdown.

Facts & Figures

  • During the crash, the DJIA dropped almost 700 points before rebounding.
  • In January, the SEC showed signs of questioning the new structure of the stock market.

Best Quote

“Who could argue that competition was a bad thing … and that faster trades would be a bad thing?” – Joseph Saluzzi, Co-Head of Trading at Themis Trading