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May 6 'flash crash': Exchanges were on different pages - Opalesque Roundtable Boston

Friday, June 11, 2010

From Komfie Manalo, Opalesque Asia:

The so-called May 6 "flash crash" which saw the Dow Jones drop 1000 points was not a product of market manipulation or monopoly, but rather was due to the fact that "not everybody was on the same page" on that day, so said participants of the latest Opalesque Roundtable in Boston.

Alec Petro, Managing Partner at Bay Hill Capital Management, a volatility-focused, multi-strategy hedge fund based in Massachusetts with $130m in AuM, said that the May 6 incident was an example of too much information and too much velocity overwhelming liquidity, coupled by a decision by "guys like us to just turn our machines off."

"People were used to a certain level of liquidity and we made a decision at a point on that Thursday that we cannot trade reasonably in this market and went into a 'wait' mode, that created a vacuum and a certain momentum along with that. Hopefully the exchanges will unify their circuit breakers, because the circuit breakers, when they kicked in, did a good job; it is just that not everybody was on the same page with them. I do believe that this sudden withdrawal of liquidity by a group of systematic traders did affect the market," Petro said.

This sentiment was seconded by Thomas Callahan, CEO of NYSE Li......................

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