Did speed traders cause May’s ‘flash crash’?
Probably. Securities regulators suspect the flash crash started when a clerk entered an erroneous price for a stock-options transaction. High-speed trading algorithms spotted the anomaly and reacted with a cascade of orders to sell the stocks related to the options, sending markets plunging before humans could intervene. High-speed trading, say researchers from the Federal Reserve Bank of Chicago, “has the potential to generate errors and losses at a speed and magnitude far greater” than anything we’ve known in the past. That’s why the major stock exchanges recently installed “circuit breakers” to temporarily halt trading in a stock if its price rises or falls more than 10 percent within five minutes. Even if the breakers succeed in reducing risk, however, they can do nothing to level the high-speed playing field. “The dilemma,” says financial consultant Sang Lee, “is, do we slow down the faster guys or require that the rest of the market speed up?” The servers that run the world On Ma
