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What just happened?

Published in Automated Trader Magazine Issue 18 Q3 2010

There's high-frequency trading, and now there's high-frequency crashing. But identifying the causes of the 6th May 2010 'flash crash' has proved to be a relatively slow process. Bob Giffords goes in search of causes, outcomes, explanations and lessons to be learned.

What happened, and how do we handle it better next time? The 'flash crash' of 6th May 2010 wasn't just a random event. It was the culmination of a causal sequence that has important lessons for high-frequency and other traders. There was the 'perfect storm' of external factors - Greek debt crisis, Gulf oil leak, UK election - coupled with the market impact of big trades that accelerated the directional push, all tied up with a tsunami of real-time data describing what was happening as it was happening, topped off with self-defensive reactions of exchange systems. In short, the market snarled itself up into a 'flash crash' just as - from some perspectives - everything came right for a busy day's trading.

Days like that shouldn't turn out like that. Trades shouldn't need to be cancelled in exciting times. In this feature, Bob Giffords speaks to traders who were in the market on the day; to the trading venues; to key players at every point on the trade cycle, to establish, first, how it was for them, and secondly, to draw up a set of best-practice suggestions for next time.

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