The Flash Crash: High Frequency Trading in an Electronic Market

41 Pages Posted: 27 May 2011 Last revised: 10 Jan 2017

Andrei A. Kirilenko

Brevan Howard Centre for Financial Analysis, Imperial College Business School

Albert S. Kyle

University of Maryland

Mehrdad Samadi

Southern Methodist University (SMU) - Edwin L. Cox School of Business

Tugkan Tuzun

Federal Reserve Board

Date Written: January 6, 2017

Abstract

We study intraday market intermediation in an electronic market before and during a period of large and temporary selling pressure. On May 6, 2010, U.S. financial markets experienced a systemic intraday event - the Flash Crash - where a large automated selling program was rapidly executed in the E-mini S&P 500 stock index futures market. Using audit trail transaction-level data for the E-mini on May 6 and the previous three days, we find that the trading pattern of the most active nondesignated intraday intermediaries (classified as High Frequency Traders) did not change when prices fell during the Flash Crash.

Keywords: High-Frequency, High Frequency Trading, Algorithmic Trading, Flash Crash, Liquidity, Volatility, Price Impact, May 6, Intermediation, Market Making

JEL Classification: G12, G13, G18, G28

Suggested Citation

Kirilenko, Andrei A. and Kyle, Albert S. and Samadi, Mehrdad and Tuzun, Tugkan, The Flash Crash: High Frequency Trading in an Electronic Market (January 6, 2017). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1686004 or http://dx.doi.org/10.2139/ssrn.1686004

Andrei A. Kirilenko (Contact Author)

Brevan Howard Centre for Financial Analysis, Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Albert (Pete) S. Kyle

University of Maryland ( email )

College Park
College Park, MD 20742
United States

Mehrdad Samadi

Southern Methodist University (SMU) - Edwin L. Cox School of Business ( email )

P.O. Box 750333
Dallas, TX 75275-0333
United States

Tugkan Tuzun

Federal Reserve Board ( email )

DC 20551
United States

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