The Stunning Comparisons Between The "Flash Crash" Of August 24, 2015 And May 6, 2010

Tyler Durden's picture

Following today's stunning not one but countless flash crashes, many have asked: just how was the flash crash of August 24, 2015 different from that of May 6, 2010. The answer is shown in the Nanex chart below, and the simple summary is that 2015's was orders of magnitude worse than 2010's as a result of E-Mini liquidity that was orders of magnitude worse throughout the entire day.

In fact, the trough liquidity on May 6 is where ES liquidity was throughout the entire day on August 24, 2015.


The outcome of this total liquidity devastation was what we summarized just after the open:

Curious why few if any traders can actually execute any trades, whether buys or sells? The reason is that despite the relative calmness of the index prints, what is going on beneath the surface is an unprecedented wave of constant halt and unhalts as all stop levels were taken out, many in circuit breaker territory, making it virtually impossible for any matching enginge to, well, match buyers and sellers. The resulting halts made it impossible for regular traders to step in, requiring central banks to buy via the CME's Central Bank Incentive Program, to restore some market stability.


So to be technically accurate, what happened in May 2010 was one marketwide flash crash, while today we had a market paralysis which was the direct result of countless distributed, isolated mini flash events, all of which precipitated the market's failure for the first 30 minutes of trading.

Nanex provides some other truly amazing charts showing the first minutes of trading and how there was practically no market for a period of about 30 minutes due to every single HFT algo going haywire almost as the same time...

... in the process leading to what may have been the most dramatic collapse in ETF logic to date.

The market farce was so profound, and the outcry from the handful of people who still care about "markets" large enough that even CNN had no choice but to opine:

Normally there are a few dozen trading halts a day. But Monday wasn't a normal day with 1,200 halts. "That's huge. I've never seen that many halts," said Dennis Dick, a market structure consultant at Bright Trading. Dick said he believes the stock market may have suffered even worse losses if it weren't for the trading pauses. "The circuit breakers are designed to prevent a full-on flash crash. Those circuit breakers kind of saved the day," he said.

Maybe, then again, the circuit breakers gave us a glimpse into the ETF endgame:

The circuit breakers were implemented more than 600 times on ETFs, the increasingly-popular securities that trade like stocks. ETFs hold a basket of stocks, removing the risk of betting on a single company. examined the pricing action and discovered at least eight ETFs that showed "flash-crash" style drops at the opening of trading.


* * *

ETFs that experienced panic selling are far larger and wouldn't be expected to have that kind of turbulence. For example, the iShares Select Dividend ETF (DVY) plummeted as much as 35% at its lows.


That's a stunning move considering this BlackRock (BLK)-backed ETF is worth over $13 billion and is focused on stable American stocks that have a long history of paying dividends.


None of this ETF's top holdings -- like Lockheed Martin (LMT), Philip Morris Internationa (PM)l and McDonald's (MCD) -- suffered losses north of 11%.  It was even worse for the Guggenheim S&P 500 equal weight ETF (RSP). The $10 billion fund, which holds some well-known stocks like Chipotle (CMG) and ConAgra (CAG), plummeted nearly 43% at one point on Monday.


Another popular ETF that seeks to capitalize on the booming cybersecurity business plummeted as much as 32%. The ETF, PureFunds ISE Cyber Security ETF (HACK), has a market value of more than $1.2 billion.

Said otherwise, for minutes at a time, there was an unprecedented disconnect in ETF fair value as hedge funds sold off ETFs however correlation arbitrageurs were unable to capitalize on the discrepancy with the underlying leading to historic, and extremely lucrative divergences.

At this point, experts are still scratching their heads over what may have caused these ETFs to nosedive. One possible explanation is that liquidity providers -- think high-speed traders and other Wall Street firms -- charged with stabilizing the market weren't there when needed. That's what happened during the flash crash of 2010.


"When markets get hairy, sometimes those liquidity providers step out of the way to avoid getting run over," said Matt Hougan, CEO of Despite the steep selloffs, Hougan said ETFs generally "functioned well" during the market difficulty.

The bottom line, as Themis Trading's Joe Saluzzi summarized, "Something went wrong here. Somewhere along the way, the ETF pricing model was broken today." Noting that there are more than $3 trillion in ETF assets, Saluzzi said: "They better hope they don't have a confidence problem there."

The good news is that with liquidity inevitably collapsing ever further to a state of near singularity with ongoing central bank interventions, and with markets broken beyond repaid, we will very soon have a repeat flash crash like today, one which will provide enough satisfactory answers to the question of just happened that lead to a market that was completely broken for nearly an hour, and where the VIX was so very off the charts, the CBOE was afraid to show it for at least thirty minutes.

One thing is certain though: while the market dies a slow, painful, miserable death, the biggest HFTs will continue pocketing millions. Such as Virtu: "Virtu Financial Inc., one of the world’s largest high-frequency trading firms, was on track to have one of its biggest and most profitable days in history Monday amid a tumultuous 24 hours for world markets, according to its chief executive."

“Our firm is made for this kind of market,” said the CEO, Douglas Cifu.

Correction: your firm made this kind of market.

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gdiamond22's picture

Virtu - doing God's work

Newsboy's picture

Today's distributed flash crash took vastly more computers and algorithmic complexity, orders of magnitude more.


El Oregonian's picture

Smash crash...

Like a smash and grab, only this is for white collar thieves...

Victor E. Overbanks's picture
Victor E. Overbanks (not verified) El Oregonian Aug 24, 2015 8:19 PM

Ass blast...

Like a smash crash, only this one is a bit more messy....

Money Boo Boo's picture

USSA is winding itself up to go full retard any day now, so please expect a woar to break out at any moment as all the usual suspects have been warming up on the tarmac for some time now. Syria, Iran, N Korea and China have all alternated their turn on the propoganda turntable for the last few weeks. Where will the wheel of misfortune land?

WOAR's picture

Expect the WOAR shortly after we elect Deez Nuts. Or the clown wearing a toupè. Or the woman who should be in prison.

In simpler terms, nothing will happen until just before/after the elections.

Money Boo Boo's picture

Depending on who the MIC wants as their puppet it may happen before the vote to swing it to their perferred candidate, Hitlery.

Jumbotron's picture

Hell, today was just beta testing for the next upgrade in Skynet HFT.

Go back to sleep, Organics, the Machine is self healing and perpetually upgrading for your good.  And for the children.

Bloppy's picture

The other similarity: Jim Cramer in the middle of both crashes, trying to manipulate the outcome.

Cramer in Cuffs 2015! Make it happen!


Rick Santelli rails against pundits already calling for Wall Street bailouts

Stained Class's picture

VOLATILITY as a concept is broken. When the S&P went 30 points Down, then 35 points Up on 8/12, "volatility" went DOWN?  That was a 65 pt shakeup.

So then, Friday 8/21 you go the SAME 65 points, but in one direction (down) and Volatility Increases? If it had gone +65 points, Volatility decreases?  

These brilliant morons get what they deserve.

FreeNewEnergy's picture

Nice charts.

JPM should die.

LetThemEatRand's picture

I imagine the day will come (maybe 10 or 20 years from now), when some MSM "reporter" will write an article about how investors were scammed by HFT back in the early-2000's.  He'll probably win an award for excellent journalism, and other "reporters" -- and maybe even some politicians -- will comment about how it's too bad nobody at the time understood what was going on.

adr's picture

The caption for that picture is:

"Great job today guys, truly spectacular. We destroyed the market and made billions. Tonight extra champagne, caviar, and 12 year old Asian virgins, boys or girls, your choice."

CHC's picture
CHC (not verified) Aug 24, 2015 8:02 PM

The markets were HACKED - therein lies the fucking problem.  This wasn't any fat fingers, algos going crazy or anything else. 

Ms No's picture

Bitcoin is damn sure not hanging in with gold.  It's not quite shitcoin yet but not doing well.


q99x2's picture

Good job ZH except the photo of financial perverts smiling is a little hard to take.

ISEEIT's picture

I'm inclined to think we may have a few moar of these 'market' events coming up soon..



Crisismode's picture


Yes, Hopefully tomorrow morning.


Another 600 point drop would be nice.


Just the iceing on the cake for the 1600-point drop coming on Friday.


Have a Great Day!



mastersnark's picture

As liquidity does not exist, it means most folks are wisely on the sideline doing the recommended buy and hold strategy, amirite?

NoWayJose's picture

They let that kid living in his parent's basement in London out on bail recently. He caused a flash crash last year (wink, wink). Of course he caused this one too!

jpc578's picture

How much longer could markets function on any level if liquidity doesn't improve?

The Old Man's picture

Even flash reading this article shows that the manipulators are stopping only the outsiders who panicked at first rout and then kept an eye out for the late comers on the other side of the world to jink it even further. These guys are playing trades regardless of the machine algos. They want something else. They're not congratulating each other for saving the system. They are waiting for something else. I wonder what. Are they hedging? Way up on cash and waiting. Somethings afoot here and this particular scenario should be watched closely. I think these guys have an in. IMHO

stant's picture

" market has lost 2.2 trillion dallors" somebody else was on the other side of that trade

angryoldbastard's picture

Yes it was.


I knew the moment I saw the local news shmuck try to announce how far the Dow had dropped, and the numbers were changing faster than he could keep up.  When it hit -900 I logged on and dumped 1650 shares fo SPXS for a 40% gain in four days, then instantly jumped into SPXL.  Sold that around 2PM for a 9% gain, and bought another 400 shares at around 3:30 PM.  Sold those at 3:45!  And it's only Monday!


+/- 500 points in the Dow every day this week would not surprise me.  Ultimately the market is going to fall 19.9% from the May highs by the Fed meeting.  It's up to each how they plan to take money away from Wall Street during this time.

Gambit's picture

And how the fuck do you know that it will be 19.9%... who are you? God? Excuse the French

angryoldbastard's picture

They won't let it be a real "bear market" (-20%).  My point is that the manipulation will never end, even when it appears to be ending.


A drop of "19.9" can still be called a "regular and expected and no big deal correction", and all the retail money can be herded right back in for Christmas.  I think THE PLAN is to drop the markets up until the Fed meeting, have them raise a quarter-point since it will be "priced in", have Hilsenrath telegraph that it will be the only rate raise for 2015, possibly until March 2016 so the Fed can "see how the economy reacts", then the year-end rally begins.  Sometime around late January the party ends at S&P 2000-2050, and then the real drop starts.


At this point I'm going to say I'm 55% sure that Joe Biden will be the next President. Yes I know that sounds completely stupid.  But Hillabitch is imploding and the media WILL NOT allow a Republican to win, so it will be "Caretaker Joe" for four.  And who better to preside over a 45% drop in the markets as the Fed slowly steps back up to 4% than everyone's favorite drunk uncle?  He'll tell rambling stories about riding the train and throw out pitches at baseball games and 60% of the population will be on antidepressants (and the other 40% on booze, weed, and coke), and somehow we'll all get through those years like we did 1977-1980.

GotGalt's picture

Today was beautiful, one I will remember fondly for a long time.


Also, LOL at angryoldbastard.  I agree with your rant and predictions, including Biden ha ha.  60% on antidepressants, 40% on booze/weed/coke, but 100% will vote Camacho as prez and drink brawndo by the case!

Dens's picture

I got some more chart porn. In the ES, look at this crazy price action around the open . 15:30 is the open time here.