Tagged: equities

Flash crash panel offers measures for market overhaul

Regulators should stem the growing tide of anonymous stock-trading and consider imposing fees on high-frequency traders, said a panel of experts advising how to avoid another “flash crash.”

The panel’s 14 recommendations for U.S. securities and futures regulators contained far-reaching ideas to overhaul the high-speed electronic market. Yet many of the ideas issued on Friday called only for “consideration” or “further study” — potentially raising more questions as the first anniversary of the May 6 flash crash nears.

“I don’t think it’s possible to prevent another one from happening,” said Adam Sarhan, chief executive of Sarhan Capital in New York…

The unprecedented May 6, 2010, market crash sent the Dow Jones industrial average down some 700 points before rebounding, all in a matter of minutes. It rattled investors, exposed flaws in the structure of markets, and set regulators on a mission to fix the system and restore confidence.

Since then, individual stocks have experienced what some refer to as “mini” crashes, where shares unexpectedly move on a sudden burst of volume, absent of any news…

“What market regulation now has to do is limit uncertainty,” said Maureen O’Hara, professor of finance at Cornell University and member of the flash crash panel. “You limit uncertainty by limiting the amount of movement a price can have before it falls off the map…”

Some of the recommendations, such as expanding and modifying the “circuit breaker” trading pauses, had been anticipated and mostly endorsed by traders and exchanges such as NYSE Euronext and Nasdaq OMX Group…

Following the flash crash, some lawmakers called for a crackdown on traders who use algorithms to execute complex trading strategies across markets.

But the panel’s report focused on structure and liquidity issues, and did not blame high-frequency trading, said Overdahl, who is also an advisor to the Futures Industry Association’s Principal Traders Group, which includes some of the largest high-frequency traders in the market.

Even if you’re not an investor you should RTFA. The consequences of something like the uncontrolled – and barely understood – Flash Crash could conceivably shove us into another recession for no reason other than an endless loop in corrupted software.

Not to mention corrupt practices by financiers.

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