Flash Crash

The Flash Crash was a major stock market crash that happened on May 6, 2010 in which three major US indices crashed in the span of 36 minutes.

In particular, the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite fell nearly 9% before rebounding within minutes. The event differed from other crashes in that most losses were recovered.

The crash was believed to be caused in part by Navinder Singh Sarao, a British financial trader. Sarao was later charged with spoofing algorithms, utilized just prior to the flash crash, which helped destabilize the market.

This included placing orders for thousands of E-mini S&P 500 stock index futures contracts. which he planned on canceling later.

These orders amounted to $200 million worth of bets that the market would fall, modified nearly 19,000 times before being canceled.

The Flash Crash was instrumental in the eventual banning of spoofing or layering, which is seen as market manipulation.

Other Theories for the Flash Crash

The idea of a single trader ultimately sparking a multi-trillion-dollar stock market crash is not a uniform consensus. There are several other hypotheses as to what caused the event.

One theory is the result of a technical glitch that may have resulted in the drying up of liquidity on the day of the crash.

Additionally, the fat-finger theory stipulates that an inadvertent large "sell order" for Procter & Gamble stock incited massive algorithmic trading orders to dump the stock.

Other theories include existing vulnerabilities in the structure of equities markets, and most commonly the influence of high-frequency-trading (HFT).

For their part regulators did determine later that HFT did play at least some part in the crash, though no uniform consensus cause has since been reached even a decade later.