According to U.S. News, three and a half years have passed since the afternoon when the stock markets went into a trillion-dollar free fall and just as suddenly reversed course, recovering 80 percent of that loss. It all happened in less than 45 minutes.
The “Flash Crash” of May 6, 2010, was the unintended result of high-frequency trading (or HFT), in which heavy-duty computers execute sophisticated trading strategies in millionths-of-a-second time frames. HFT has been the source of many smaller crashes and other mishaps, occasionally shutting down trading venues and even putting firms out of business. Yet the practice continues to grow, while the transaction times get shorter and shorter.
A few weeks ago, the Commodity Futures Trading Commission, which has jurisdiction over almost all derivatives markets under the Dodd-Frank financial reform law, published a paper evaluating various “kill switches” that might contain the damage when the machines go haywire again.