The “flash crash”, then the panic: Scandinavian stock exchanges under attack

The brief moment of collapse of today’s European stock exchanges is, as things currently stand, with no explanation other than the unloading of a situation of tension and nervousness on the markets due to an unforeseeable triggering reason, probably a human error. The Scandinavian stock exchanges were the most affected by what traders call the “flash crash“: around 10, all the European markets suddenly plunged into deep red, which then recovered (in part) after a few minutes. During the brief moment of panic on the markets, the Stockholm benchmark stock index, at a some point it dropped by 8%.

Copenhagen, on the other hand, fell by 8.3% and Helsinki by 7.9%. In response to this moment of chaos, the European markets in turn fell back, causing the indices, which were already down by about 0.8%, to lose between 2 and 4%, before returning to their previous levels. On the Milan stock exchange, the collapse led the Ftse Mib index to drop almost 900 points, suffering a loss of 3.8%. In Frankfurt it was -2.1%, in Paris -3.4%, in Madrid -2.4%, in Amsterdam -4%. Now all these price lists have absorbed the damage, but the disorientation remains.

At first it was thought that the origin of the collapse depended on the Oslo Stock Exchange but Euronext Oslo explained that it was examining the causes of the collapse that are currently inexplicable.

From this point of view, no news appears to justify a collapse of this type. In the same minutes, in fact, the data of the PMI manufacturing index for April were released in some European countries, with a contrasting trend, not definitive in its indications. But without collapses such as to trigger a crash or a phase of panic. More likely that on this occasion the collapse was caused by an error inplacing an orderin this case on various European stocks, so much so as to hit all the lists a little.

This would not be the first case in history. The most famous flash crash was that of the Dow Jones index, of the New York Stock Exchange, which took place between 14:42 and 15:07 local time on May 6, 2010. That day, in a phase marked by great nervousness due to the Greek debt crisis and the aftermath of the Great Recession, without any provocation Wall Street left 10% on the ground in minutes. Wall Street saw $ 700 billion disappear and then bounce by a robust 7% not enough to recompose the losses. As reported Life, it seems that the cause may be related to “a Citigroup trader” who allegedly “placed a sell order on a complicated financial product that included Procter & Gamble stock by typing” b “for billion (billions) instead of” m “for million (millions) and causing the “whole system. Panic on markets around the world with progressive sell orders. Procter & Gamble was losing 40% while other stocks such as Accenture almost 100%, then recovering the initial value before closing”.

The trader’s mistake would then have fueled erroneous predictions and reckless operations of the algorithms high frequency trading on which the world stock market moves. Hft is based on very refined algorithms that base the decision to make massive sales or purchases on certain price or trend parameters. Therefore an error in the input setting can generate a cascade effect before the correction. In this case, Europe went well because whatever the cause, and human error is the most likely, the crash was early in the morning and far from closure. But in a nervous phase, after a month of declining stock markets, USA in the lead, even a single grain of sand can put the entire financial mechanism in difficulty. In difficult times, a small bug is therefore able to bend, even if only temporarily, an entire system. Showing all the vulnerability to the unexpected and to the butterfly effects “ that can potentially turn a typo into an economic disaster. A further testimony of how digitization, if conceived without a perspective of human control over processes, does not necessarily improve the operational capacity of economic actors.

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The “flash crash”, then the panic: Scandinavian stock exchanges under attack

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