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Analysis of the "Flash Crash"
Date of Event: 20100506
Part 5, Crash Myths
|There are many who believe that the NYSE "Slow Quote" mode or
LRP's (Liquidity Replenishment Point) caused the market to drop.
However, only 1 stock was in slow quote mode when the final decline began, and
only 3 were by the time it was half way done. From the chart below it is clear
that the NYSE was not entering slow mode until WELL into the collapse:
|Furthermore, the stocks entering "slow mode" were trailing the
market, not leading the market. The stocks that led the market are the same
stocks we analyzed in Part 3, The
Evidence. PG was such a stock that trailed the market. From the
following chart you can see that PG had NO trades on the NYSE when it entered
"slow mode" from approx. 14.45.30 to 14.47.15 and that at this time,
the market had already collapsed.
It is also clear that Apple trailed the market and was not the cause of the
|Stub quotes did not cause the crash. You can see from the charts below that
while stub quote counts did rise, they did not become prevalent or effect BBO
prices until the crash was almost over. One could infer that the presence of
stub quotes is a good indication of a lack of liquidity.
Publication Date: June 18, 2010
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