Unhappy Anniversary of the Flash Crash


Jim McTague explains why this is the unhappy anniversary of the flash crash:

From Jan. 1 through April 30, 2010, investors put $668 million into stock funds, says the Investment Company Institute, the mutual-fund trade group. By the end of 2010, they had withdrawn about $96 billion. In 2011, there were $135 billion in outflows. This year, there have been more than $15 billion in outflows.

The hazards posed by the new robots were detected not by the regulators but by Sal Arnuk and Joe Saluzzi, partners in a small proprietary trading company. They blew the whistle in December 2008, accusing some of the owners of these high-frequency trading machines of manipulating the market. (They tell all in a book out next month called Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street are Destroying Investor Confidence and Your Portfolio.)

Eric Hunsader of Nanex, a small data firm, uncovered real-time evidence of market manipulation and also showed up the regulators. His Twitter feed tracking machine misbehavior has become must-reading for investors.

Nothing has changed since May 6 2010. The odds of another co-located, algo-driven, dislocation remains as high as ever.


Happy Flash Crash
Jim McTague
Barron’s, MAY 5, 2012

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