Flash back

4 October 2010 By Richard Beales Follow @richardbeales1

There’s no real blame. Preexisting jitters and one large trade, overlaid with computerized trading and data glitches, led U.S. stock market liquidity to dry up briefly on May 6. Some fixes are possible. But the broader lesson is that markets will always have tipping points.

This content is for Subscribers only

To access full Breakingviews.com content you must be a subscriber. Please use the following link to request a trial.

Context News

A computerdriven sale worth $4.1 billion by a single trader helped trigger the May 6 "flash crash," setting off liquidity shocks that ricocheted between U.S. futures and stock markets, regulators concluded in a report dated Sept. 30.

The report by the Securities and Exchange Commission and the Commodity Futures Trading Commission did not name the trader. Reuters and other news outlets identified the trader as money manager Waddell & Reed Financial.

In an already uneasy market, the firm's unusual sale triggered a disappearance of liquidity with knockon effects across stock and other markets. The "flash crash" sent the Dow Jones industrial average plunging some 700 points, some 7 percent, in minutes on May 6, before losses were mostly erased over a slightly longer period.

"The interaction between automated execution programs and algorithmic trading strategies can quickly erode liquidity and result in disorderly markets," the report said.

Email a friend

Please complete the form below.

Required fields *

Flash back

This content is for Subscribers only

Existing Users Log In

Email a friend

Please complete the form below.