The term Flash Crash didn't exist until May 6, 2010 when the spontaneous, inexplicable and dramatic 1,000-point plunge and subsequent rebound of the stock market left an indelible scar on investor psyche. There have been a few small but well-contained instances since then, but for the most part, the Flash Crash was a one day event.
Speaking for myself, and an unscientific survey of friends and contacts in the business, no one believes that it won't happen again. In fact, at least one expert thinks it not only could happen again, he thinks it will happen again and will be so large and interconnected with other asset classes and exchanges, that he's coined the term "Splash Crash" to reflect the predicted spillover effect.
"Our concern is, with extreme correlation between different asset classes - equities, futures, commodities, energy and foreign exchange - a flash crash in one asset class could spill over... this could lead to an even bigger crash" says John Bates, the Chief Technology Officer of Progress Software and consultant to the Commodity Futures Trading Commission.
To be fair, the original Flash Crash spawned a six-month probe led by the Securities and Exchange Commission that resulted in a series of new trading limits or collars that halt trading when irregularities occur. So far, it has largely worked for the stock market, but experts like Bates think a lot more needs to be done in a lot more places.Read More »from “Splash Crash” Could Rock the Global Financial System: Security Consultant