On the afternoon of May 6, 2010, the major US stock indices fell roughly 5 to 6 percent in a matter of minutes and then recovered most of the loss within about twenty minutes. The Dow Jones Industrial Average briefly dropped close to 1,000 points intraday, the largest point swing in its history to that date. Some individual stocks traded at absurd prices - a few touched a penny, others briefly spiked toward $100,000 - before the moves reversed. The episode became known as the Flash Crash.
The staffs of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) investigated jointly and released their findings on September 30, 2010, in a report titled “Findings Regarding the Market Events of May 6, 2010,” prepared for the agencies’ Joint Advisory Committee on Emerging Regulatory Issues. The report concluded that on an already nervous day, a large fundamental trader (later identified as Waddell and Reed) used an automated execution algorithm to sell 75,000 E-Mini S&P 500 futures contracts, worth about $4.1 billion, as a hedge. The algorithm was set to track trading volume but not price or time, so it dumped contracts into a thinning market.
High-frequency trading firms initially absorbed the selling, then began rapidly buying and reselling the same contracts to one another. The report described this as a “hot potato” effect that inflated apparent volume while real liquidity evaporated, driving the E-Mini price sharply lower before circuit-breaker-style pauses and the natural return of buyers reversed the move.
The Flash Crash is one of the clearest public case studies of automated trading systems interacting in ways no single participant intended. It drove the adoption of market-wide circuit breakers and limit-up/limit-down rules, and it remains a standard reference point in debates about algorithmic and AI-driven trading.