BoE speech on HFT http://www.bankofengland.co.uk/publicat ... ech509.pdf
Stock prices can go down as well as up. Never in financial history has this adage been more apt than on 6 May 2010. Then, the so-called “Flash Crash” sent shocks waves through global equity markets. The Dow Jones experienced its largest ever intraday point fall, losing $1 trillion of market value in the space of half an hour.
History is full of such fat-tailed falls in stocks. Was this just another to add to the list, perhaps compressed into a smaller time window?
No. This one was different. For a time, equity prices of some of the world’s biggest companies were in freefall. They appeared to be in a race to zero. Peak to trough, Accenture shares fell by over 99%, from $40 to $0.01. At precisely the same time, shares in Sotheby’s rose three thousand-fold, from $34 to $99,999.99.
These tails were not just fatter and faster. They wagged up as well as down.
The Flash Crash left market participants, regulators and academics agog. More than one year on, they remain agog. There has been no shortage of potential explanations. These are as varied as they are many: rom fat fingers to fat tails; from block trades to blocked lines; from high-speed traders to low-level abuse.
From this mixed bag, only one clear explanation emerges: that there is no clear explanation. To a first approximation, we remain unsure quite what caused the Flash Crash or whether it could recur.
2010 Flash CrashIn 2003, a US trading firm became insolvent in 16 seconds when an employee inadvertently turned an algorithm on. It took the company 47 minutes to realise it had gone bust.
Nice interactive step-by-step chart of what happened on the DOW
http://online.wsj.com/article/SB1000142 ... nteractive