The Microstructure of the 'Flash Crash': Flow Toxicity, Liquidity Crashes, and the Probability of Informed Trading;

摘要

The CFTC-SEC [2010b] identified conjunctural factors as the explanation of the flash crash. While acknowledging such factors may have played a role, our analysis suggests that the flash crash is better understood as a liquidity event arising from structural features of the new high-frequency world of trading. In this high-frequency world, liquidity provision is dominated by computerized market makers programmed to place buy and sell orders, while avoiding taking significant inventory positions. When order flow toxicity increases, such market makers face significant losses and curtail their risks by reducing, or even liquidating, their positions. The consequent market illiquidity can then have disastrous repercussions for market participants.