It's been four and a half years since the 2010 Flash Crash. What has been fixed? Nothing.
Why would anything change? Nothing ever changes in a stagnant society functioning at the same level as a terminal old age home. The newly elected Republican Congress just rolled back Dodd-Frank and pushed back the Volcker Rule as its first order of business, so the concept of reforming anything from 2008 or 2010 is going in completely the other direction. Occupy Wall Street was laughed off the streets by aging Etraders desperately eager to bankrupt themselves again at the Dow casino.
The Hotel Californication Visualized
MAXIMUM LEVERAGE and MINIMUM VOLUME: Bad Combination
NYSE Margin (black line) versus NYSE Trading Volumes (red line):
MAXIMUM LEVERAGE and MINIMUM VOLUME: Bad Combination
NYSE Margin (black line) versus NYSE Trading Volumes (red line):
Once the selling begins, there will be no way to stop it...
As it was in 2010, the HFT Bots will instantaneously morph from liquidity makers into liquidity takers. And then they will once again just step aside to preserve capital. Meanwhile, the market-wide circuit breakers are another disaster wanting to happen. They've never been tested. During Lehman in 2008, they never kicked in once. The market dropped 30% in a straight line, but the thresholds for the circuit breakers were never breached.
Stock Market Circuit Breakers: Programmed Catastrophe
Regardless, when these "circuit breakers" do inevitably kick in, they will be the ultimate disaster. Only high trading volumes can stabilize a free-falling market and circuit breakers which work based on price levels, have as their goal to inhibit trading volumes. Once the "limit down" price is reached, trading is stopped for a prescribed period of time (see below). Picture a situation where the market is limit down, halted, opens again limit down, halted, opens again limit down and then halts for the rest of the day. Meanwhile, options, currencies, futures and bonds will all be trading away in the background. The market never clears itself. Sell orders back up and are never executed. The next day, rinse and repeat.
"Specifically, the circuit-breaker halt for a Level 1 (7%) or Level 2 (13%) decline occurring after 9:30 a.m. Eastern and up to and including 3:25 p.m. Eastern, or in the case of an early scheduled close, 12:25 p.m. Eastern, would result in a trading halt in all stocks for 15 minutes. If the market declined by 20%, triggering a Level 3 circuit-breaker, at any time, trading would be halted for the remainder of the day."
Low volume as a gimmick for unidirectionally moving prices, cuts both ways and HFT+circuit breakers will ensure that it happens
