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Analysis of the "Flash Crash"
Date of Event: 20100506
- Quote and trade data must have time stamps reflecting when they were
generated. This will ensure delays can be detected by everyone.
Reasoning: Changing the procedure to time stamp at the time a quote or trade is
generated is a near trivial exercise. It probably comes as a surprise to many
that time stamping isn't done that way now.
- Quote-stuffing should be banned.
Reasoning: Quote and trade dissemination (data feed) is a finite
resource, and should be treated as such.
- Add a simple 50 millisecond quote expiration rule: a quote must remain
active until it is executed or 50ms elapses. If the quote is part of the NBBO,
it may be improved (higher bid or lower offer price) at any time without
waiting for the expiration period.
Reasoning: The exchanges must protect the integrity of the National Best
Bid/Offer system. What is the point of having a National Best Bid/Offer, if not
everyone in your nation (apologies to Alaska/Hawaii) can reasonably
execute a trade against it? 50ms is approximately the time it takes light and
electronic communication to travel from New York to California and back. It is
impossible to transmit information any faster. This rule would not limit
quote/trade rates. So long as trades are executing, quotes can update thousands
of times a second. Only a small percentage of quotes today would be affected
and the potential for catastrophically high rates would be eliminated.
Publication Date: June 18, 2010
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