Factbox: The European “flash crash” was the latest of many around the world in the past decade
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S. April 28, 2022. REUTERS/Brendan McDermid
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NEW YORK, May 3 (Reuters) – Monday’s sudden drop in European stocks after a flawed trading session in Nordic markets is the latest example of a “flash crash”, in which an asset’s price falls rapidly before recovering recovered.
The term “flash crash” became part of market lingo after the Dow Jones Industrial Average plummeted roughly 1,000 points in May 2010, wiping out nearly $1 trillion in shareholder value before mostly recovering within minutes.
Flash crashes are examples of extreme market volatility or structural issues and can erode investor confidence.
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Most are the result of human error, such as B. “Fat finger” errors where a trader accidentally adds an extra zero to an order or accidentally requests a large order to be filled immediately instead of flowing into the market. They can also be caused by computer errors and algorithms gone haywire.
Here are some examples of recent Flash crashes:
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February 25, 2021: Treasury bond prices fell sharply amid tight liquidity conditions before recovering in about an hour.
Aug 26, 2019: The Turkish lira plummeted as investors cut risk and briefly boosted the safe haven yen against the lira.
January 3, 2019: Major currencies experienced a flash crash against the Yen, driven mostly by technical, not fundamental, factors.
7 Oct 2016: The pound sterling lost up to 10% of its value in just a few minutes of trading, fueled by concerns about the vulnerability of the currency and other British assets to Brexit.
August 24, 2015: US equity and equity-related futures markets experienced unusual price volatility, causing the SPDR S&P 500 ETF Trust to fall 7.8% five minutes after the market open. The ETF recouped its losses within the next five minutes.
Oct 15, 2014: The US Treasury securities market was characterized by high volatility and Treasury futures prices fell rapidly on reduced liquidity. The incident sparked an official investigation. While this did not find a single cause, record trade volumes, a drop in order book depth, and changes in order flow on the day were noted that may have contributed to the crash.
May 4, 2010: Unresolved market conditions combined with a massive sell order in a popular futures security sent the Dow down around 9% in minutes before bouncing back.
Dubbed the “Flash Crash,” the event led US regulators to implement a safeguard known as “Limit-Up Limit-Down,” which prevents stocks from trading outside a certain range based on recent prices, and trading paused with the stocks in question if prices break through the bands.
In 2016, a London-based trader was convicted of manipulating the futures market in a way that contributed to the 2010 flash crash.
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Reporting by John McCrank, editing by Rosalba O’Brien
Our standards: The Thomson Reuters Trust Principles.
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