IBM Global Financial Markets Chief on Preventing Another 'Flash Crash'

Financial regulators are set to release their report on the "flash crash" that caused the Dow Jones Industrial Average ($INDU) to plummet a stomach-churning 1000 points in May, before recovering the same day. The episode spooked both regulators and traders, and some investors have been wary of returning to the market in the months since.

The report will finger a single trade by Waddell & Reed Financial as a main cause of the crash, though regulators are not going to name that institution in their report, according to Reuters. Apparently, a single trade by Waddell & Reed in so called e-mini futures contracts precipitated the plunge. During testimony before Congress, Commodities Futures Trading Comission Chairman Gary Gensler had mentioned the trade, without naming the company.

The incident highlighted the increasing role of high-speed, computerized trading in today's financial markets. Keith Saxton, Global Director of Financial Markets at tech giant IBM (IBM), stopped by DailyFinance to discuss the role of technology in financial markets and how regulators can prevent the market from going haywire again.

"What we've learned is that the regulators don't have the same tools as the people playing the market," Saxton says. "We have to tool up the regulators and supervisors to see what's actually going on in near real time."

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Rick makes the error of believing that all foreclosed homes go straight to market and that buyers in the market have full access to the inventory, which in his thinking is being worked off.

November 12 2010 at 12:31 AM Report abuse rate up rate down Reply

Oh Golly Geee whatever caused that !?

October 02 2010 at 7:02 PM Report abuse rate up rate down Reply

Whatever happens make sure the rich win!

October 02 2010 at 7:00 PM Report abuse rate up rate down Reply

Block trading and automatic computerized trading now dominate the market. Over half the volume occurs during the first and last hour of the trading day. Between say, 11 AM until 3 PM traders take a four hour lunch, and leave the computers on auto pilot, guided and triggered by algorithms. The NYSE doesn't care as long as the volume stays high. The greater the volume, the more revenue for the exchanges like NYSE and the NASDAQ.

October 01 2010 at 11:49 PM Report abuse +1 rate up rate down Reply

With the extremely low volume rise was anyone really surprised that there was no bid underneath the market? This will happen again as long as most of the volume is controlled by a handful of people (Goldman Sachs, certain hedge funds, Morgan Stanley, JPM, etc.)

October 01 2010 at 8:41 PM Report abuse +1 rate up rate down Reply

For the US stock market to have real credibility, the Feds HAVE to prevent another computer generated crash and financial meltdown. They most probably won't as it's obvious by now that Wall Street owns Congress and the government. That's why gold is at $1320 an ounce and playing the stock market for individual investors is a fool's game. Hard assets rule, and the coming inflation will confirm that. We'll have stimulus plans every election year; a trillion here, a trillion there, buys a lot of votes, but will destroy the dollar and this country.

October 01 2010 at 4:40 PM Report abuse +2 rate up rate down Reply

The flash crash and high-frequency computerized trading are two reasons why the individual investor, throughout the world, is boycotting the U.S. financial markets. Federal regulators need to make extra effort to find a solution to these problems so that future lethal problems might not creep up and destroy the financial markets. Knowing how some greedy addicts on Wall street work, future catastrophes could unexpectedly happen.

October 01 2010 at 3:01 PM Report abuse rate up rate down Reply