Wall Street & Technology is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.


05:35 PM
Connect Directly

Could Market Volatility Be Hiding a Flash Crash?

Market volatility is not the same as a Flash Crash, Instinet's Alison Crosthwait says.

RELATED ARTICLE: "Volatility Spurs Aggressive Algo Strategies"

Although the recent market volatility has many investors on edge, experts agree that a sudden but market-driven dip could not mask another failure of the financial system on the magnitude of the Flash Crash. For one thing, the May 6, 2010, Flash Crash saw a drop-off in market value of more than 10 percent; the average market dip in the second half of 2011 has been around 2 percent, according to Alison Crosthwait, managing director of global market structure research for Instinet, who is based in Toronto.

How to Master Market VolatilityThe world's markets have been on a wild ride, and there's no end to the volatility in sight. Advanced Trading's January digital issue takes an in-depth look at how the buy side is adapting to the new normal and examines how successful hedge funds are turning the volatility to their advantage.
It's important to separate the two types of market events, Crosthwait says. "The Flash Crash was a 10 percent move in a couple of minutes followed by a recovery," she relates. "I don't think a down trading day of 2 percent can mask another flash crash."

In addition, U.S. regulators and exchange operators have established measures, including circuit breakers, to prevent a repeat of a true flash crash, Crosthwait adds. "The Flash Crash was due to the lack of [controls]," she suggests. "We're in a much safer situation now." Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio

Register for Wall Street & Technology Newsletters
7 Unusual Behaviors That Indicate Security Breaches
7 Unusual Behaviors That Indicate Security Breaches
Breaches create outliers. Identifying anomalous activity can help keep firms in compliance and out of the headlines.