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Visualizing the May 6th Flash Crash

by on August 2, 2010

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.

Flash Crash Analysis – May 6’th 2010 – Part 4 – Nanex. via “It’s not a Market, It’s an HFT Crime Scene” via Infosthetics

  • Noman

    What High Frequency Trading programs do is to send out small orders to probe the market. This gives these programs a view into the price that a seller is willingness to accept for a stock. Currently 70+% of all the volume in the stock market is from High Frequency Trading programs.

    Would you play poker against someone if they could see your hand, but you could not see theirs? That is what is happening here.

    These offers are not legitimate. This constitutes fraud. High Frequency Trading should be banned.