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SEC Flash Crash Report

SEC Flash Crash Report

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Published by: cybergoodman2 on May 03, 2011
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In the previous section we explored the liquidity of the E-Mini and SPY, and discussed the
behavior of cross-market arbitrage participants on May 6 during the decline of the broad
markets. Among our findings was that even though volume spiked that afternoon, the markets
suffered significant reductions in liquidity as prices fell.

Charts 1.A and 1.B on the next two pages illustrate the extent to which large capitalization
stocks lost liquidity. The four panels of the first chart display progressively narrower slices of
time within which a more detailed view of the aggregate order books for stocks comprising the
S&P 500 is shown. This is the same data as plotted in Figure 1.12, but in this case different
color bands are used to represent liquidity at different depths from the mid-quote, from 10
basis points through 500 basis points. We note that between 2:35 p.m. and 2:46 p.m., buy-side
depth falls to about 25% of its mid-day value, and sell-side depth falls even further to about
15% of its mid-day value. Resting liquidity near the inside of the market at 10 basis points
virtually disappears, indicative of spreads widening as liquidity (and prices) fell.

The second chart repeats the data from the first chart but adds additional bars revealing the
extent to which resting orders existed beyond 500 basis points from the mid-quote. The graphs
show a significant reduction in buy-side market depth, but sell-side depth is only slightly
affected. This suggests that resting buy-side interest even beyond 500 basis points was being hit
(or canceled) as prices fell.

Chart 1.A: S&P 500

Market Depth (within 500 basis points) and Net Aggressive Buy Volume

9:30am - 4:00pm

2:00pm - 3:30pm

2:30pm - 3:00pm

2:40pm - 2:55pm

Theorderbookdepthreflectsthetotalnumberofsharesinunfilledlimitorders,by tickerandminute. Thedata combinestheinformationfrom NYSE Openbook, ArcaBook, NASDAQModelView, andBATSorderbookdata.
NetAggressiveBuy Volumeisdefinedasexecutedsharesassociatedwithaggressivebuyordersminusexecutedsharesassociatedwithaggressivesellorders.
Aggressivebuy ordersaremarketbuyordersandbuy ordersatorabovetheofferprice. Aggressivesellordersaremarketsellordersandsellordersatorbelowthebidprice.

Shares (Millions)

-110

-88

-66

-44

-22

0

22

44

66

88

110

Time

9:30

10:00

10:30

11:00

11:30

12:00

12:30

1:00

1:30

2:00

2:30

3:00

3:30

4:00

P
r
ic
e

45

46

47

48

49

50

51

Shares (Millions)

-80

-64

-48

-32

-16

0

16

32

48

64

80

Time

2:00PM

2:15PM

2:30PM

2:45PM

3:00PM

3:15PM

3:30PM

P
r
ic
e

45

46

47

48

49

50

51

Price:

Minimum Executed Price

Net Aggressive Buy Volume

Order Type:

Mid+%0.1

Mid+%0.2

Mid+%0.3

Mid+%0.4

Mid+%0.5

Mid+%1.0

Mid+%2.0

Mid+%3.0

Mid+%5.0

Mid-%0.1

Mid-%0.2

Mid-%0.3

Mid-%0.4

Mid-%0.5

Mid-%1.0

Mid-%2.0

Mid-%3.0

Mid-%5.0

Shares (Millions)

-60

-48

-36

-24

-12

0

12

24

36

48

60

Time

2:30 PM

2:35 PM

2:40 PM

2:45 PM

2:50 PM

2:55 PM

3:00 PM

P
ric
e

45

46

47

48

49

50

51

Price:

Minimum Executed Price

Net Aggressive Buy Volume

Order Type:

Mid+%0.1

Mid+%0.2

Mid+%0.3

Mid+%0.4

Mid+%0.5

Mid+%1.0

Mid+%2.0

Mid+%3.0

Mid+%5.0

Mid-%0.1

Mid-%0.2

Mid-%0.3

Mid-%0.4

Mid-%0.5

Mid-%1.0

Mid-%2.0

Mid-%3.0

Mid-%5.0

Shares (Millions)

-50

-40

-30

-20

-10

0

10

20

30

40

50

Time

2:40 PM

2:45 PM

2:50 PM

2:55 PM

P
ric
e

45

46

47

48

49

50

51

Chart 1.B: S&P 500

Full Market Depth and Net Aggressive Buy Volume

9:30am - 4:00pm

2:00pm - 3:30pm

2:30pm - 3:00pm

2:40pm - 2:55pm

Theorderbookdepthreflectsthetotalnumberofsharesinunfilledlimitorders,by tickerandminute. Thedata combinestheinformationfrom NYSE Openbook, ArcaBook, NASDAQModelView, andBATSorderbookdata.
NetAggressiveBuy Volumeisdefinedasexecutedsharesassociatedwithaggressivebuyordersminusexecutedsharesassociatedwithaggressivesellorders.
Aggressivebuy ordersaremarketbuyordersandbuy ordersatorabovetheofferprice. Aggressivesellordersaremarketsellordersandsellordersatorbelowthebidprice.

Shares (Millions)

-300

-240

-180

-120

-60

0

60

120

180

240

300

Time

9:30

10:00

10:30

11:00

11:30

12:00

12:30

1:00

1:30

2:00

2:30

3:00

3:30

4:00

P
r
ic
e

45

46

47

48

49

50

51

Shares (Millions)

-300

-240

-180

-120

-60

0

60

120

180

240

300

Time

2:00PM

2:15PM

2:30PM

2:45PM

3:00PM

3:15PM

3:30PM

P
r
ic
e

45

46

47

48

49

50

51

Price:

Minimum Executed Price

Net Aggressive Buy Volume

Order Type:

Mid+%0.1

Mid+%0.2

Mid+%0.3

Mid+%0.4

Mid+%0.5

Mid+%1.0

Mid+%2.0

Mid+%3.0

Mid+%5.0

Mid+%5.0+

Mid-%0.1

Mid-%0.2

Mid-%0.3

Mid-%0.4

Mid-%0.5

Mid-%1.0

Mid-%2.0

Mid-%3.0

Mid-%5.0

Mid-%5.0+

Shares (Millions)

-200

-160

-120

-80

-40

0

40

80

120

160

200

Time

2:30 PM

2:35 PM

2:40 PM

2:45 PM

2:50 PM

2:55 PM

3:00 PM

P
ric
e

45

46

47

48

49

50

51

Price:

Minimum Executed Price

Net Aggressive Buy Volume

Order Type:

Mid+%0.1

Mid+%0.2

Mid+%0.3

Mid+%0.4

Mid+%0.5

Mid+%1.0

Mid+%2.0

Mid+%3.0

Mid+%5.0

Mid+%5.0+

Mid-%0.1

Mid-%0.2

Mid-%0.3

Mid-%0.4

Mid-%0.5

Mid-%1.0

Mid-%2.0

Mid-%3.0

Mid-%5.0

Mid-%5.0+

Shares (Millions)

-200

-160

-120

-80

-40

0

40

80

120

160

200

Time

2:40 PM

2:45 PM

2:50 PM

2:55 PM

P
ric
e

45

46

47

48

49

50

51

35

May 6, 2010 Market Event Findings

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