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Sunday, May 22, 2022

POLITICO: Feds Trace 1,000 Point Dow Flash Crash to Chicago

From Politico.com:

Federal investigators probing the “flash crash” that briefly sliced nearly 1,000 points off the Dow Thursday are zeroing in on a series of “unusually high-volume” trades in S&P futures that originated in Chicago, a government official told POLITICO.

Those trades set off a chain reaction of trades that caused the biggest drop within a single day in the Dow Jones Industrial Average’s storied history.

Officials at the Securities and Exchange Commission and the Commodity Futures Trading Commission briefed Washington policymakers late Friday on their theory of what triggered the plunge.

According to the government official, investigators have traced the calamity back to the trades in Chicago, which were picked up by automated trading computers in New York. The New York computers in turn issued a series of sell orders, which had a cascading effect on the Dow as even more programs picked up on the trading and issued their own sell orders.

When the New York Stock Exchange slowed down its computerized trading in response to the sell-off, sellers turned to other exchanges. That increased volatility in the markets was in turn picked up by computerized algorithms, which executed even more sell orders.

“They can see on the tape what made it more volatile,” the government official said. “They can see what the accelerators were. What they don’t know is what set the whole chain in motion. They’re still a few links in the chain away from that.”

More here.

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