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Flash Crash Forensics Fly at Tabb Forum

The Flash Crash may be more than a year old but leading financial figures are still scratching their heads at what caused the free fall in stock prices on May 6th of last year.

At yesterday's Tabb Forum symposium entitled Market Structure Revolution, financial reps from major investment firms and exchanges discussed the Flash Crash, the new consolidated market and how to gain consumer confidence in a grinding recession. While economists debate if we are approaching a double dip recession, the panelists appeared rather confident. One said that the US market structure is the strongest it's been in decades.

(Per Tabb Group rules, panelists did not give their permission to be quoted for this article. We present their quotes without attribution and not note that some speakers hail from such firms as UBS, Goldman Sachs, Citi, Morgan Stanley, Nasdaq and so on. The quotes have been lightly edited for the sake of grammar and clarity.)

Some quotes from Tabb Forum panelists:

-- "We're happy with the new rules but clients want to address the disappearance of liquidity that took place on May 6th. There's more to do."

-- "Will there be more rules? After the Flash Crash the market will evolve into a new place. There was susceptibility for rapid movements in the market without a buffer. This drop occurred in the entire market; nothing happened on a single stock level. We need a much more intelligent application of a circuit breaker idea."

-- "There are realistic expectations out of the market makers -- to prevent a crash from happening."

-- "Considering May 6th, before the circuit breakers were activated, it was a literal free fall in the US equity market structure. This is the dirty secret. That's an embarrassing moment fore the US. In Europe they were shocked that we didn't have single-stock circuit breakers in place."

-- "On the Flash Crash, when the prices dropped the algos shut down."

One panelist said that despite consolidation of exchanges a Flash Crash might happen once again because there are multiple forms and versions of data out there that could hide the first signs of a new Flash Crash. This makes sense: after last year's calamity financial regulators needed more than four months to create a report as to how the drop occurred. Why did it take so long? The sheer volume of data from market participants. In the meantime, news programs and editorialists shook their heads at human error, namely 'fat finger mistakes.' This was, in retrospect, a good news hook for people who do not understand high finance but not the reason for the events of that day.

During the keynote interview, PBS and Bloomberg TV host Charlie Rose interviewed Glenn Hutchins, co-founder and co-CEO of Silver Lake. After joshing about basketball, Hutchins declined to answer any questions about Microsoft's acquisition of Skype (he owns some shares apparently). Hutchins did say that mobile telephony is the biggest investment opportunity in our lifetime. He added that the world had to deal with the US credit crisis, the Greek's debt dilemma and the changing role of China's exports.

For his part, Rose didn't venture into high finance or market structure, instead talking about game changers such as Facebook, Amazon, Apple and, of course, Google.

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

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