This Sunday was the two-year anniversary of the 2010 Flash Crash and even though the true anniversary took place over the weekend -- and one-day after Cinco de Mayo -- people seem to be talking more about the 'super moon' instead of what happened two years ago when the market lost more nearly 1,000 points after an erroneous trade.
Perhaps this reticence is due to the fact that since the Flash Crash we have had a number of mini-flash crashes that only earn notice and headlines if they have an impact on Apple's stock. The recent BATS IPO flameout comes to mind.
In an upcoming June 2012 edition of Advanced Trading, former AT editor Kerry Massaro Bowbliss looks into the circuit breaker rule that was put into place in the days after the 2010 Flash Crash. One factoid jumped out at me in Kerry's piece:
According to reports, the circuit breakers have been deployed 110 times in the past year. [One source] says the scenario in which this happens the most is when an order outsizes the displayed liquidity. Removing all available liquidity often pushes trading through the circuit breaker level, forcing a halt in the stock's trading.
That's right: the circuit breakers' 'bell' was rung more than one hundred times in the last 12 months. It's ironic because when people talk about high-frequency trading, the supporters are desperate to avoid mentioning any downsides like sudden losses of liquidity or rogue algos. That said, the SEC remains concerned; its proposed 'Limit up, Limit down' provision that "would prevent trades in listed equity securities from occurring outside of a specified price band, which would be set at a percentage level above and below the average price of the security over the immediately preceding five-minute period."
The SEC plans to vote on 'Limit up, Limit down' later this month. Even though low-latency and HFT are pushing the definition of time and space, the SEC still recognizes a need to be able to yell, "Time out!"