Flash crash

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A flash crash is a very rapid, deep, and volatile fall in security prices occurring within an extremely short time period. A flash crash frequently stems from trades executed by black-box trading, combined with high-frequency trading, whose speed and interconnectedness can result in the loss and recovery of billions of dollars in a matter of minutes and seconds.[1]

This type of event occurred on 6 May 2010 when a $4.1 billion trade on the NYSE resulted in a loss to the Dow Jones Industrial Average of over 1000 points and then a rise to approximately previous value, all over about fifteen minutes. The mechanism causing the event has been heavily researched and is in dispute.

Two notable flash crashes have occurred as of August 2013:

In October 2013 a flash crash occurred on the Singapore Exchange which wiped out $6.9 billion in capitalization and saw some stocks lose up to 87 percent of their value. The crash resulted in new regulations being announced in August 2014. Minimum trading prices of 0.20 cents per share would be introduced, short positions would be required to be reported, and a 5 percent collateral levy implemented. The exchange said the measures were to curb excessive speculation and potential share price manipulation.[2]

Two short-lived (less than a second) movements (more than 1%) in several (40 and 88) stock prices followed by recovery were reported for November 25, 2014.[3]

References

  1. ↑ Bozdog, Dragos. "Rare Events Analysis of High-Frequency Equity Data". Wilmott Journal, pp. 74-81, 2011. Retrieved 20 November 2013.
  2. ↑ "Singapore Exchange regulators change rules following crash". Singapore News.Net. Retrieved 2 August 2014.
  3. ↑ "Two mini-flash crashes rock stock market Tuesday". MarketWatch. Retrieved 25 November 2014.