2010 US financial markets flash crash

A trader using a modified trading algorithm manipulated US financial markets, causing a trillion dollar crash and significant market volatility. 

UK trader Navinder Singh Saroa allegedly modified a common trading algorithm to generate large sell orders, pushing down prices, which he then canceled to buy at the lower market prices. 

The impact was immediate and severe, with the overall market dropping by 6 percent, and approximately USD 1 trillion in paper stocks lost within 36 minutes. Hundreds of billions of dollars were wiped off the share prices of household name companies like Proctor & Gamble and General Electric, and caused a significant loss of confidence among investors, even if most stocks recovered within a few days.

The incident was seen to highlight the vulnerability of financial markets to sudden shocks, and the ease with which they could be manipulated using basic algorithms. The also incident raised questions about the role of algorithmic trading in modern markets, and led to increased scrutiny of algorithmic trading practices and their potential to destabilize markets. 

Research, advocacy 🧮

• Kirilenko A. et al. The Flash Crash: The Impact of High Frequency Trading on an Electronic Market (pdf)

Investigations, assessments, audits 🧐

•  US Securities and Exchange Commission, Commodity Futures Trading Commission. Findings Regarding the Market Events of May 6, 2010 (pdf)

News, commentary, analysis 🗞️

• https://www.theguardian.com/business/2015/apr/22/2010-flash-crash-new-york-stock-exchange-unfolded

• https://blogs.lse.ac.uk/businessreview/2017/06/26/flash-crash-the-first-market-crash-in-the-era-of-algorithms-and-automated-trading/

• https://www.sifma.org/resources/research/10th-flash-crash-anniversary/

• https://www.bloomberg.com/opinion/articles/2015-04-21/guy-trading-at-home-caused-the-flash-crash

• https://theconversation.com/predicting-the-next-stock-market-flash-crash-114888

• https://www.npr.org/2015/04/25/402136396/who-or-what-crashed-the-market-in-a-flash-in-2010