Nanex, via Marketbeat, gives us this graphical look at the Flash Crash:

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click for ginormous charts

Category: Markets, Trading

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7 Responses to “Flash Crash”

  1. johnborchers says:

    I really doubt this is going to end up a one day event. I’m sure there will be another day in the not so far distant future where deep in the money calls suddenly go to $0 again but such a thing can not be timed.

    Placing limits on shares may be more of a hinderance than a good doing as we go forward. Who wants to be locked out from selling should such a free fall commence? I know I wouldn’t.

    I think all this ended up doing is giving some confidence such a thing wouldn’t occur again and perhaps some false confidence.

  2. Jack Doyle says:

    What effect would a 2-3 basis points transaction tax have on this matter?

  3. KidDynamite says:

    jack – that depends on whose errors you think are smashing stocks in these mini-crashes (they happen every week now, PGN today)… a good start, rather than adding taxes which further decrease liquidity, is to 1) stop canceling trades – hold whomever is sending these orders accountable for their f-ups and 2) educate retail traders about what a market order really means (I think we should ban market orders, or make them like options trading – you have to show some sophistication/competence before you’re allowed to do it) so that they have no excuses

  4. traderdc says:

    KidD – no need to add a new tax for all trades…better solution is to allocate existing market costs based on message traffic volume rather than traded market share….take the SEC fee and stop charging it on every sell order, instead charge a far small amount on every order…those with real strategies placing orders that actually trade will have a smaller SEC bill, and the cxl arb HFTs that are stuffing quotes will have a huge bill, and disincentive. No need to add a new tax to existing, responsible citizens.

  5. jpmist says:

    Nice. Nanex does some great work here. I’ve added some links to further explain the chart.

    FT has some good commentary: http://ftalphaville.ft.com/blog/2010/09/28/354736/the-annotated-flash-crash-diagram/

    But the Nanex summary is a must read: http://www.nanex.net/FlashCrashFinal/FlashCrashSummary.html

    ” IV. Recommendations

    In our original flash crash report, we made 3 simple and straightforward recommendations. We’ve clarified and reduced them down to 2 (a rule banning quote stuffing is not required because the minimum quote life rule would effectively stop this practice):

    1. Replace the existing time stamp in consolidated quotation feeds with one generated immediately before that data becomes available to any system.

    2. Add a minimum quote life rule, whereby a quote must remain active until executed, improved, or a specific amount of time (50ms) elapses.

    A minimum quote life rule has far less chance for unintended consequences, because as early as 5 years ago, it was essentially in force due to the limits of technology at that time. This chart shows a conservative estimate of the amount of quotes that would have been eliminated if the minimum quote life rule was 50ms. We believe the reduction in quote traffic from this rule would have prevented quote delays, making access to this data more fair to everyone.

    Finally, we think a solution exists without new rules and regulations: if only the SEC would enforce, or at the very least provide guidance to, existing rules and regulations.

    1) Delivering market data through premium products ahead of transmission to a Network processor would seem to violate Rules 603(a) and 603(a)(2) of Regulation NMS.

    2) Placing orders for which one has no intent to execute would seem to violate Section 9(a)(1)(A) of the Securities Exchange Act.”

    Those last two points make a lot of sense to me. . .

  6. Quonk says:

    Check out QID in the lower right hand corner…talk about getting crushed on the bounceback. Sure leaves a scar on the long term chart.