Factbox: Europe’s ‘flash crash’ was the latest in a long series around the world over the past decade

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., April 28, 2022. REUTERS/Brendan McDermid

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NEW YORK, May 3 (Reuters) – European stocks’ sharp drop on Monday following a misguided trade in Nordic markets is the latest example of a “flash crash” in which the price of an asset drops quickly before bouncing back.

The term “flash crash” became part of market lingo after the Dow Jones Industrial Average cratered about 1,000 points in May 2010, wiping out nearly $1 trillion in shareholder value before rebounding in minutes.

Flash crashes are examples of extreme market volatility or structural problems and can erode investor confidence.

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Most are the result of human error, such as “fat finger” errors where a trader may accidentally add an extra zero to an order or accidentally request that a large order be filled immediately rather than hit the market. They can also be caused by computer glitches and algorithms that have gone crazy.

Here are some examples of recent flash crashes:

December 4-5, 2021: The bitcoin cryptocurrency crashed, wiping out a fifth of its value and leading to the liquidation of $2 billion in positions. Read more

February 25, 2021: Prices for Treasury securities fell sharply amid tight liquidity conditions, before recovering in about an hour.

August 26, 2019: The Turkish lira fell as investors reduced their risk exposure and briefly boosted the safe-haven yen against the lira.

January 3, 2019: Major currencies experienced a flash crash against the Yen, mostly due to technical, not fundamental, factors.

October 7, 2016: The British pound lost up to 10% of its value in minutes of trading, fueled by concerns over the vulnerability of the currency and other UK assets to Brexit.

August 24, 2015: US stock markets and equity-related futures markets experienced unusual price volatility, sending the SPDR S&P 500 ETF Trust down 7.8% five minutes after the market opened. The ETF recouped its losses within five minutes.

October 15, 2014: The US Treasury securities market experienced high levels of volatility and Treasury futures prices fell rapidly amid reduced liquidity. The incident triggered a regulatory investigation. While it found no single cause, it did note record trading volumes, a drop in order book depth, and changes in order flow that day that may have contributed to the crash.

May 4, 2010: Volatile market conditions combined with a massive sell order for a popular futures security caused the Dow Jones to plunge about 9% in minutes before rebounding.

The event was dubbed the “flash crash” and led US regulators to a safeguard known as “Limit-Up Limit-Down”, which prevents stocks from trading outside a specific range based on recent prices, suspending trading of the shares in question. when prices break above the bands.

In 2016, a London-based trader was found guilty of manipulating the futures market in a way that contributed to the flash crash of 2010.

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Reporting by John McCrank, editing by Rosalba O’Brien

Our standards: The Thomson Reuters Trust Principles.

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