Diary of a Financier

Bookshelf Update: Flash Crash 2010 Reaction

In Bookshelf on Fri 14 Jan 2011 at 10:23

I just added “Flash Crash 2010” to my Bookshelf videos. It’s an instant classic, a YouTube sensation (in my book at least). On so many of those lazy, low volume, melt up trading days since May 6, 2010’s Flash Crash, we’ve gathered around a computer screen here in the office, and we’ve revelled in this video. I just have to immortalize it by adding it to my Bookshelf. Please, enjoy…

It’s a three-minute live recording of a trader during the crash: eerie, hilarious, quotable. The “narrator” has the geeky-est, giddy-est voice I’ve ever heard. I can just picture him unbuttoning his top button, rubbing his hands together, mouth foaming, veins popping. Who can forget lines like:

  • “We call this a ca-pi-tu-la-tion!”
  • “Even Cramer doesn’t know what to think…”
  • “Cancel all orders, cancel all orders!”
  • “We told you we didn’t want to see you get… hoooooked… you got hoooooked.”

I’ll never forget the Flash Crash of 2010. Back in May of that year, my office was off of an equity trading desk, which handled special transactions for corporate equity compensation (stock option exercises, restricted stock/ESPP sales, etc.). Throughout that day, the desk’s call volume was abnormally heavy, with two of their exclusive corporations dropping sharply off 52-week highs and corporate shareholders scrambling to get out.

I remember hearing one trader trying to take an order from such a shareholder:

…would you like to execute at the Market price or at a limit?<Pause>

The Market is a $230.55 <Pause> now $230.10 <Pause> it’s at $229.05 <Pause> well you better decide because pretty soon you won’t have a Bid.

My ticker screen had been red all day, but I hadn’t been following it with any closer attention than normal. Hearing the hustle on the trading desk, I clicked on my desktop to pull up Reuters. The intraday performance start slipping before my eyes. The quote updates were furious since volume started hitting the market en masse. Someone on the trading desk let loose a chuckle. The phones started exploding. My screen started bleeding-out like one of those victims on Dexter.

Then, an uptick–the Market found a bid. Wait, no, there it goes again, down, down, down. The phones stopped ringing, the trading desk was quiet. “Here it comes, a thousand… my God, a thousand point loss, there it is,” someone muttered.

We know what happened there & thereafter. I do remember joining four friends for dinner later that night. We meet every Tuesday at the same bar/restaurant. I’m a Private Wealth Portfolio Manager, one friend is an equity analyst for a Mutual Fund company, another is a global financial equities analyst for a Money Manager, and our fourth friend is a doctor. Late in the night, we turned to the topic of the Flash Crash from earlier in the day. Our favorite bartender joined the conversation–previously unbeknownst to us, he was a day trader during Market hours. “I’ve never seen anything like it,” he said, “but that’s why you always set your stops.”

Stops indeed. If anything, the Flash Crash was reminiscent of the stop loss waterfall triggered by portfolio insurance, the widely-accepted culprit of Black Monday (October 19, 1987).

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