SEC Blames Computer Algorithm For 'Flash Crash'

Lucas123 writes "The US Securities and Exchange Commission and the Commodity Futures Trading Commission today issued an 87-page report (PDF) on the results of a months-long investigation into the May 6 'flash crash' that sent the Dow tumbling almost 1,000 points in a half hour. The Commissions are holding a single trading firm's automated trade execution platform responsible for the crash, saying it dumped 75,000 sell orders into the Chicago Mercantile Exchange over a period of minutes causing an already volatile market to come crashing down. The SEC has already enacted some quick rules to pause trading if a stock price should rise or fall by 10% in a five minute period, but the regulators said they expect the results of the investigation to prompt additional rules limiting the functions of automated computer trading systems."

Comments

Re:A time out is the right solution.

[Maxo-Texas]

But if a large organization wanted to sell stock to itself at increasingly higher or lower prices there isn't anything you can do to stop it. It's illegal as hell but hard to prove.

the only thing that makes prices rational is a fluid market.
A low volume market produces irrational prices and makes it easy to move prices around inside the limits of rational prices.

Put it this way...

Millions of baby boomers are locked in on a large chunk of their retirement money at 14,000 dow.

As they get older that price they are willing to accept to cash out is degrading (a lot of boomers would cash out immediately if the market got above 13,000 now).

As long as the price doesn't get too high or too low, the boomers are paralyzed and the market is not fluid.

In 2012 to 2016, that price will degrade more. I think we have a decade of overhead pressure from boomers cashing out. At some point, the price won't matter- they'll *have* to cash out to pay bills or go back to work (oh yea, you can't really find work if you are in your 60's these days- I mean 50's.)