Communications of the ACM
How High-Frequency Trading Is Changing Wall Street
Trader John Panin checks prices at the New York Stock Exchange. Fewer traders are on the floors of the exchanges because of computerized trading.
Richard Drew / AP
On May 6, 2010, the Dow Jones industrial average dropped hundreds of points in a matter of minutes—and then recovered moments later.
Known as the "flash crash," the incident sparked congressional hearings as well as an investigation by the Securities and Exchange Commission and the Commodity Futures Trading Commission. The two market regulators later issued a joint report in September blaming a single sale—of $4.1 billion in future contracts—for the nosedive.
Waddell & Reed, the mutual fund company that made the sale on that day in May, used automated high-frequency trading algorithms to start the trade. Those algorithms—computer programs designed to get the best execution or return on a deal—set in motion a chain of events that caused the stock market to plunge and then recover.
From National Public Radio
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