The Flash Crash: Trading Aggressiveness, Liquidity Supply, and the Impact of Intermarket Sweep Orders

29 Pages Posted: 26 Jul 2014

See all articles by Tom McInish

Tom McInish

University of Memphis

James Upson

University of Texas at El Paso

Robert Wood

affiliation not provided to SSRN

Date Written: August 2014

Abstract

During the Flash Crash on May 6, 2010, a short period of high stock market volatility, some stock prices declined to $0.01, while others increased to $100,000. Examining Intermarket Sweep Orders (ISOs) before, on, and after May 6, we find that ISO use is substantially higher on May 6. For those stocks whose prices fell the most, over 65% of the sell volume comes from ISOs. During the price recovery period for these stocks, about 53% of the buy volume comes from ISOs. We believe that the unusual behavior of ISOs contributed to the sudden drop and recovery of the market.

Keywords: flash crash, intermarket sweep orders, market quality, regulation NMS

JEL Classification: G14, G18, G19

Suggested Citation

McInish, Tom and Upson, James and Wood, Robert, The Flash Crash: Trading Aggressiveness, Liquidity Supply, and the Impact of Intermarket Sweep Orders (August 2014). Financial Review, Vol. 49, Issue 3, pp. 481-509, 2014. Available at SSRN: https://ssrn.com/abstract=2472194 or http://dx.doi.org/10.1111/fire.12047

Tom McInish (Contact Author)

University of Memphis

Memphis, TN 38152-3370
United States

James Upson

University of Texas at El Paso ( email )

500 West University
El Paso, TX 79968-0545
United States

Robert Wood

affiliation not provided to SSRN

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