On May 6, 2010, I got a phone call from a good friend of mine who day trades. "Are you watching the market?," he asked. "I've been keeping an eye on it," I said. "It's down about 200 points." I had Bloomberg's site open in a browser window on one of my monitors, and it looked to be a fairly typical down day. "No," he replied, "it's down like 1,000. I wouldn't be calling you if it were down 200 points."
My friend knows that I follow high-frequency trading (HFT), and it was immediately apparent to him and everyone in the market that day that the machines were doing something really screwy—hence the phone call. But by the time I learned that all Hell had just broken loose, the drama was mostly over. In the space of a few minutes, the complex, highly interconnected, tightly-coupled computer system that we quaintly refer to as a "market," had crashed and then recovered. The Flash Crash (of 2:45pm) wasn't quite a kernel panic, but the SEC's recently released postmortem inadvertently suggests that it may as well have been.
My former academic advisor, theologian Harvey Cox, once famously argued that, to a student of religion like himself, the market looked an awful lot like a deity. In that vein, I'll suggest that, to this student of computer science, the market as described in the SEC report looks like an awful lot like a giant, multithreaded software application. And on May 6, the market did what every piece of multithreaded software eventually does in response to just the wrong mix of execution conditions and inputs: it crashed.
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