Two years ago this weekend, the now infamous Flash Crash saw the Dow Jones Industrial Average drop nearly 600 points in a matter of minutes, followed by an even faster rebound moments later. At the time, Institutional Investor Editor Michael Peltz was knee-deep in notes for a story about high frequency trading the ensuing 6,500-word feature, called Inside the Machine, went on to win the Society of American Editors and Writers Best in Business award for excellence in explanatory journalism and the American Society of Business Publication Editors prestigious Stephen Barr Award.
At 2:45p.m. on Thursday, May 6, George (Gus) Sauter received a frantic call from one of his traders to get in front of a Bloomberg terminal. The Dow Jones industrial average, already down 3.9 percent that day on fears about Greece, was in free fall. In just five minutes the index plunged 573 points. Less than two minutes later, the Dow had rocketed back up 543 points, going on to finish the day down 3.2 percent.
It was just crazy, Sauter, chief investment officer of mutual fund giant Vanguard Group, told me a few days later. I had to go to our fixed-income building, about a five-minute walk from my office. By the time I got there, the market had rallied.
Crazy, indeed. The aptly named flash crash temporarily wiped out more than a half trillion dollars in equity value, shaking what little faith nervous investors had in U.S. markets. Shares of Dow component Procter & Gamble Co., the ultimate defensive blue-chip stock, dropped more than one third in a matter of minutes before recovering almost as quickly, all for no apparent reason. A few other large U.S. companies, including accounting firm Accenture, saw their stocks trade as low as a penny a share, only to close not far from where they had begun the day (nearly $42 a share in the case of Accenture) again, on no news. By the time the dust settled, a whopping 19.3 billion shares had changed hands, more than twice the average daily U.S. equity market volume this year and the second-biggest trading day ever. ....