Remember back on May 6th when the Dow dropped around 1,000 points only to bounce back to a mere few hundred point loss? The cause of the so-called "Flash Crash" has finally been identified by the Securities and Exchange Commission. It was a problem with some computer software that automated futures trading. Ben Rooney at CNN/Money reports that some large unnamed investor was using the a program that sold future contracts quickly and in large numbers:
The selling was initially absorbed by "high frequency traders" and other buyers, the report said. But the algorithm responded to an rise in trading volume by increasing the number of E-mini sell orders it was feeding into the market.
"What happened next is best described in terms of two liquidity crises -- one at the broad index level in the E-Mini, the other with respect to individual stocks," the report said.
In other words, the lack of buyers and the rapid selling of E-Mini futures contracts began to affect the underlying stocks and the broader stock indexes.
The the full story at CNN/Money.