CFE 2015: Start Registration
View Submission - CFE
A1479
Topic: Contributions on high-frecuency data Title: Layering the order book: Quoting activity during the flash crash Authors:  Eric Aldrich - University of California Santa Cruz (United States) [presenting]
Joseph Grundfest - Stanford University (United States)
Gregory Laughlin - University of California Santa Cruz (United States)
Abstract: We present a data-driven re-examination of the Flash Crash, using millisecond-stamped quote and trade data from the Chicago Mercantile exchange (CME), augmented by nanosecond resolution data recorded at the Nasdaq Exchange. We set the Flash Crash event into context by comparing the market state on May 6, 2010 with measures of market microstructure recorded on a large number of preceding trading days in 2010. We also draw particular comparisons with August 9, 2011, during which the CME recorded its highest-ever daytime messaging traffic. Our analysis leads to a number of conclusions. (1) Volume and messaging at the CME on May 6, 2010, while high, were not unprecedented. (2) Liquidity and price correlation between the CME and Nasdaq exchanges only experienced a breakdown after the CME market stop, which ended the crash itself. (3) The structure of the CME E-mini limit order book on May 6th was highly unusual, exhibiting large imbalances between the number of resting sell orders and resting buy orders, but only at price levels deep in the book. We find little evidence, however, that these imbalances are correlated with subsequent price movements. (4) The Flash Crash itself unfolded on the CME in an orderly and disciplined manner. Our interpretation is that high-frequency traders acted as both market makers and takers, and imposed a steady decay in prices during a period in which there was effectively no significant external buy-side interest from traditional market participants.