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September 29, 2008

The Other Flash Crash 

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The Other Flash Crash

No, not the May 6th event, the one on September 29, 2008, when the Dow Jones Industrials fell 500 points in about 4 minutes, only to recover 5 minutes later.

This time, the fall was likely caused from traders betting that the House vote on TARP would fail, which it did at 14:07.

There are a few similarities to the May 6th event. One is quote feed saturation which overloaded systems. On September 29, Nasdaq's quote became delayed, just as NYSE's was on May 6th. Except in this case, Nasdaq's quote was delayed by minutes, and eventually quotes stopped coming altogether from Nasdaq. But that didn't seem to affect trading at Nasdaq. Though, based on trade reports it did confuse other exchanges and internalizers. There were also a number of stocks that hit stub quotes which began after the market found a bottom and was rallying back up.

We are pretty sure Waddell & Reed didn't cause this crash either.

For reference, here is a one second interval chart of SPY on May 6th, 2010 showing the trades from all reporting exchanges which are color coded according to the legend at the bottom left of the chart. Note the delay (offset) in the green dots, which are from dark pools or internalizers. The gold or yellow dots are from NSX, previously known as Cincinnati.

The following are all one second interval charts from September 29, 2008.

SPY showing the NBBO (red shading shows where it was crossed). The black is Nasdaq's severely delayed and crossed quote.

SPY with Nasdaq Trades (black circles) and Quotes (black shading).

SPY showing trades from all reporting exchanges. The green dots are mostly from dark pools (internalizers). ARCA trades track both the delayed Nasdaq quote and the real one.

The following are all one second interval charts on September 29, 2008 showing quotes from all reporting exchanges. Confusion reigns.


SDS ~ ProShares UltraShort S&P500

DIA ~ SPDR Dow Jones Industrial Average ETF

DXD ~ Proshares Ultra Short Dow Jones Industrial Average ETF

IWM ~ iShares Russell 2000

QQQQ ~ Powershares

AAPL ~ Apple Computer

C ~ Citigroup

DIS ~ Disney

JNJ ~ Johnson & Johnson

MA ~ Mastercard

MER ~ Merrill Lynch

PEP ~ Pepsi

QCOM ~ Qualcomm

RIO ~ Rio Tinto Plc

USO ~ United States Oil Fund

WMT ~ Walmart

GS ~ Goldman Sachs

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Publication Date: 02/10/2012

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