Brian Boru wrote:
agip wrote:please tell me what shady events led to the flash crash.
How would I know? I wasn't in on it.
Tell me how the Dow could drop 600 points in 5 minutes and regain it in 20 without manipulation.
The joint report "portrayed a market so fragmented and fragile that a single large trade could send stocks into a sudden spiral,"[10] and detailed how a large mutual fund firm selling an unusually large number of E-Mini S&P 500 contracts first exhausted available buyers, and then how high-frequency traders (HFT) started aggressively selling, accelerating the effect of the mutual fund's selling and contributing to the sharp price declines that day...
"Automatic computerized traders on the stock market shut down as they detected the sharp rise in buying and selling."[12] As computerized high-frequency traders exited the stock market, the resulting lack of liquidity "...caused shares of some prominent companies like Procter & Gamble and Accenture to trade down as low as a penny or as high as $100,000."[12] These extreme prices also resulted from "market internalizers,"[18][19][20] firms that usually trade with customer orders from their own inventory instead of sending those orders to exchanges, "routing 'most, if not all,' retail orders to the public markets – a flood of unusual selling pressure that sucked up more dwindling liquidity."[13]
While some firms exited the market, firms that remained in the market exacerbated price declines because they "'escalated their aggressive selling' during the downdraft."[10] High-frequency firms during the crisis, like other firms, were net sellers, contributing to the crash.[10][11][12][13]
The joint report said prices stopped falling when, "At 2:45:28 pm, trading on the E-Mini was paused for five seconds when the Chicago Mercantile Exchange ('CME') Stop Logic Functionality was triggered in order to prevent a cascade of further price declines. In that short period of time, sell-side pressure in the E-Mini was partly alleviated and buy-side interest increased. When trading resumed at 2:45:33 pm, prices stabilized and shortly thereafter, the E-Mini began to recover, followed by the SPY."[9] Or as The New York Times reported, "The rout continued until an automatic stabilizer on the futures exchange cut in and paused trading for five seconds, after which the markets recovered."[12]
The joint report noted that after a short while, as market participants had "time to react and verify the integrity of their data and systems, buy-side and sell-side interest returned and an orderly price discovery process began to function," and that by 3:00 pm (EDT), most stocks "had reverted back to trading at prices reflecting true consensus values" and the Flash Crash was over.[9]