Question

14. Globally Stock exchanges are concerned about the effects of a ‘Flash crash’.
a. What is a ‘Flash crash’?
b. What happened in the NASDAQ Flash crash on August 22, 2013?
c. The stock exchange launch of Facebook launch did not go as investors hoped. What
actually happened on the day of listing?

Answer 1

Sol:

(a) Flash crash can be defined as an event where there is a rapid withdrawal of stock orders from the electronic securities market, which leads to a rapid decline in prices in a short period of time, This sell-off of securities can happen as quickly as a few minutes and can result in dramatic losses.This is often the result of computer trading programs reactions to abnormalities in the market where there is automatic selling of large volumes at an incredibly rapid pace to avoid losses.

(b) On August 22, 2013, trading came to a halt at the Nasdaq for more than 3 hours. This was because computers at the New York Stock Exchange could not process pricing information from the Nasdaq, primarily because of Flash trading, resulting in rapid selling of securities and inability to create a balance between the buy and sell orders at the exchange.

(c) On May 18, 2012, Facebook launched its IPO. Though this was not exactly a flash crash, but Facebook shares were held up for more than 30 minutes at the opening bell as a glitch prevented the Nasdaq from accurately pricing the shares causing a reported $460 million in losses.