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Flash Crash & Systemic risk interview: Richard Balarkas, President and CEO of Instinet Europe

Published in Automated Trader Magazine Issue 18 Q3 2010

The so-called ‘flash crash’ on 6 May 2010 briefly wiped $1 trillion off US market capitalisation, and caused no shortage of heated debate and finger pointing.  Bob Giffords, independent banking and technology analyst, talks to Richard Balarkas of Instinet Europe.


Richard Balarkas, President and CEO of Instinet Europe

What are markets there for anyway? Who's now calling the shots? So begins Richard Balarkas with a fascinating review of how technology has removed archaic structures and inefficiencies, increased buyer power and in effect democratized the financial markets. Only the markets themselves still haven't woken up to that fact. He concludes that what happened on 6 May was an entirely predictable surprise. He also challenges some pretty fundamental cornerstones of the US system including the trade through rules and suggests that regulators may be asking the wrong questions. For example, did existing market rules actually facilitate the failure by allowing market orders, penny prices for stub quotes and snake-in-the-grass orders in the first place?

How does Instinet then protect its own clients using clever trading algorithms? Can human traders provide an effective back-stop in the surging electronic tides of 21st century markets? What pitfalls lie in wait for the unwary European trader like backwardisations or perverse cross-market scenarios? Instinet Europe's president asks some pretty challenging questions to clients who dare to trade through a volatility interrupt auction or who think that 'what they see' is 'what they'll get'. The markets have clearly come a long way, but for Richard Balarkas it's only just beginning.