Federal regulators investigating the causes of the May 6 “flash crash” concluded a large trader’s use of a computer trading system to sell futures contracts led to a rapid and sudden selling that triggered additional selloffs in an already unstable market.
According to a joint report from the staffs of the Securities and Exchange Commission and Commodity Futures Trading Commission, the trader chose to use an algorithm to trade the E-mini futures contract, a contract that mimics trading in the S&P 500 stock index. The computer program executed the trade “extremely rapidly in just 20 minutes,” according to the report.
The report found that the trades were initially absorbed by high-frequency traders and others in the market, but soon liquidity dried up for that contract and elsewhere.
Full Story: Report: Algorithm Set Off ‘Flash Crash’ – WSJ.com