Visualizing the May 6th Flash Crash
Researchers and financial analysts are still trying to figure out what exactly happened on the May 6th “Flash Crash”, where the stockmarket took a huge hit and instantly bounced back, causing confusion and panic around the world. While the exact cause remains elusive, researchers have begun to notice some strange behaviors in the data that seem related to the various HFT systems.
While analyzing HFT (High Frequency Trading) quote counts, we were shocked to find cases where one exchange was sending an extremely high number of quotes for one stock in a single second: as high as 5,000 quotes in 1 second! During May 6, there were hundreds of times that a single stock had over 1,000 quotes from one exchange in a single second. Even more disturbing, there doesn’t seem to be any economic justification for this. In many of the cases, the bid/offer is well outside the National Best Bid/Offer (NBBO). We decided to analyze a handful of these cases in detail and graphed the sequential bid/offers to better understand them. What we discovered was a manipulative device with destabilizing effect.
The analysis shows some obvious non-organic effects that lend some credibility to the theory of deliberate manipulation.