Report: Algorithm set off ‘flash crash’

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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.

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