Thursday, November 26, 2020

Tag: Flash Crashes Are a Permanent Part of U-S- Markets: Should You Worry?

Flash Crashes Are a Permanent Part of U.S. Markets: Should You Worry?

by Pam Martens and Russ Martens, Wall Street On Parade:

Over the past year, there have been flash crashes in multiple markets, raising concerns that fat fingers, algorithms and/or rogue hedge fund traders are still running amok. We’ll get to the specifics in a moment, but to put the unusual trading patterns in context, you need some important background information.

Wall Street On Parade began reporting on flash crash activity following the Granddaddy of all flash crashes thus far – the event on May 6, 2010 when the stock market did a bungee jump, briefly plunging 998 points, with hundreds of stocks momentarily losing 60 per cent or more of their value and knocking out stop-loss orders for retail investors. Former SEC Chair Mary Schapiro estimated at the time that individual investors had lost more than $200 million in these improperly triggered stop loss orders on May 6. (Read our skepticism on the official regulatory report here.)