Could Market Volatility Be Hiding a Flash Crash?

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

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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.

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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