Quotes and prints during May 6 “Flash Crash”...

Discussion in 'Order Execution' started by abattia, Oct 6, 2010.

  1. Interesting report here about quotes and prints during May 6 “Flash Crash”...


    Under “Equity Average Bid/Ask Quote Spread”

    DOW and Nasdaq-100 stocks behaved similarly during the trading day with quote spreads becoming around 3.5 times wider during the highvol period and then returning to levels approaching those of the pre-highvol period. On the other hand, spreads in ETF stocks widened by nearly 24 times during the highvol period, then continued to widen substantially during the post-highvol period reaching levels over 52 times wider than those present during the pre-highvol period. Actual intraday average bid/ask spreads were as follows for the pre-highvol, highvol and post-highvol periods respectively: DOW stocks – $0.02/$0.09/$0.03; Nasdaq-100 stocks – $0.01/$0.04/$0.02; ETF's – $0.04/$1.05/$2.33.

    I am struggling to understand why ETF spreads behaved so differently during and after the crash.

    Anybody able to explain this?

    “pre-highvol period” = from 09h30 – 14h40 EST
    “highvol period” = from 14h40 – 15h00 EST
    “post-highvol period” = from 15h00 – 16h00 EST
  2. imo, post crash spreads were the result of huge amounts of uncertainty regarding quote/data integrity coupled with trying to figure out what exactly you were in at what prices, what might bust, and how to handle hedging your book when you weren't sure of anything.
  3. OK, yes. That makes sense. Thanks

    ... so as ETFs generally hold assets such as stocks, commodities, or bonds,

    ... and are supposed to trade at approximately the same price as their net asset value,

    ... and as these net asset values were so uncertain at that time (and remained so for the rest of the day),

    ... dealers widened spreads to protect themselves (until the end of the day when ETF net asset values could be determined accurately again) against trading against a counterparty with better, more up-to-date information about these asset values.