The Flash Crash: The Impact of High Frequency Trading on an Electronic Market


Gregg Berman, Securities and Exchange Commission & Andrei Kirilenko, Commodity Futures Trading Commission


The Flash Crash, a brief period of extreme market volatility on May 6, 2010, raised a number of questions about the structure of the U.S. financial markets. In this paper, we describe the market structure of the bellwether E-mini S&P 500 stock index futures market on the day of the Flash Crash. We use audit-trail, transaction-level data for all regular transactions to classify over 15,000 trading accounts that traded on May 6 into six categories: High Frequency Traders, Intermediaries, Fundamental Buyers, Fundamental Sellers, Opportunistic Traders, and Noise Traders. We ask three questions. How did High Frequency Traders and other categories trade on May 6? What may have triggered the Flash Crash? What role did High Frequency Traders play in the Flash Crash? We conclude that High Frequency Traders did not trigger the Flash Crash, but their responses to the unusually large selling pressure on that day exacerbated market volatility.


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