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Posted on 22 April 2011 | 3,296 views

Apple and Cisco 2011 Mini Flash Crashes Kept Quiet

When the “Flash Crash” wiped some $1 trillion of companies’ market value on May 6, 2010, when the US Dow Jones Industrial Average dropped 700 points before rebounding in a matter of minutes, the sudden plunge in stock prices was partially due to computers setup with “High-Frequency Trading Strategies“, in which thousands of orders to buy and sell shares are executed in fractions of a second.

And there’s a chance such a crash could happen again, according to Nick Nielsen, head of trading at Marshall Wace, a London-based hedge fund. “There has really been nothing done to fix some of the issues that we had in last May’s flash crash,” he said. “To be a bit honest, I am actually surprised that it did not happen during the entire “Japan Crisis” [when a major earthquake and tsunami hit Eastern Japan in March this year].”

Though there have been no major drops in a market’s average, individual companies have seen major fluctuations in share prices occur in fractions of a second. Trading of Progress Energy (Stock Symbol: PGN) was halted for a day in September 2010 after its share prices plunged from $44.57 to $4.57 in less than a second.

Other, less drastic “Mini Flash Crashes” stopped trading in other stocks, which happens more frequently then one would think, including Apple (Stock Symbol: AAPL) — which has been halted in 2011 and Cisco Systems (Stock Symbol: CSCO) — which has been halted in 2011, without generating much news because investors a bit scared to see what the public response would be if a large “Flash Crash” happens again. There could be some pretty aggressive regulation coming very quickly, similar to what happened when all of the bank stocks were getting hammered in 2008.

What is happening in the market place is nothing new — what is new is the technology. Traders need to understand it and they have to work with it. That is the only way that they are going to be able to fix all the inconsistencies which are prevalent in the market place.

Earlier this month, Germany’s leading investment bank has rolled out an updated version of its “Stealth” product, which uses complex mathematical models to predict the price changes of shares in microseconds. These decisions will be used to purchase securities for Deutsche Bank’s mutual and pension fund clients.

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