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Definition of a "Mini-Flash-Crash"
The AMJ Event of October 11, 2011

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In the course of our research many reporters and industry professionals have asked us to define what a "Mini-Flash-Crash" is. We cannot think of a better explanation than the event shown below. Furthermore, while usage of the term "Mini-Flash-Crash" is now discouraged by regulators, we also cannot think of a single term that better describes the event.

On October 11, 2011, the stock AMJ plummeted from $34.90 to $32.61 (a 6.5% loss) and then recovered, all in just under 4 seconds. This was not an event caused by news or a fat-finger error.

16:23:19 ET - NASDAQ MarketWatch is investigating potentially erroneous transactions involving the security JPMorgan Alerian MLP Index ETN (AMJ) executed between 15:40:00 and 15:41:00 ET today. MarketWatch will advise with details as soon as available. Participants should review their trading activity for potentially erroneous trades and request adjudication through the Clearly Erroneous process within the applicable timeframe for filing pursuant to the rule.

16:35:01 ET Pursuant to Rule 11890(b) NASDAQ, on its own motion, has determined to cancel all trades in security JPMorgan Alerian MLP Index ETN (AMJ) at or below $33.19 that were executed in NASDAQ between 15:40:00 and 15:41:00 ET. This decision cannot be appealed. MarketWatch has coordinated this decision with other UTP Exchanges. NASDAQ will be canceling trades on the participant’s behalf.

Many proponents of HFT claim it dampens volatility, such as this research paper which claims "Volatility is caused by panic behavior. Computers don't panic, humans do". We feel confident in saying that during this 4 second event, no human was involved. In the time it took you to read the previous sentence, the event was over.

Was any investor harmed in this event? We think the answer is yes. Shown below is a chart with only trades plotted (all quotes are removed). Trades that were later canceled are plotted in orange, while trades that stuck are plotted in white. While a large number of trades were indeed canceled (390 of 794 trades were canceled to be exact), it is easy to see that many trades far away from the trading price just 2 seconds prior stuck:

Finally we present a slightly longer term chart (approximately 14 seconds) which gives a better perspective on how quick and suddent the move was:


Publication Date: 10/12/2011

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