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Fifth Annual Cass-Capco Risk Management Conference
April 19, 2012: Cass Business School, London, UK

The fifth annual conference of the Cass-Capco Institute on Risk brought together practitioners and academics to discuss how risk can be managed to lessen its impact on business and economic growth... Read More

Banking in the “Glocal” World
March 1, 2012: Zurich, Switzerland

Swiss Finance Institute and Capco Institute were pleased to present the Inaugural Annual conference of the SFI-Capco Institute Paper Series on Banking in Zurich, Switzerland. The conference brought together leading financial experts and scholars to discuss... Read More

Controlling Volume and Flow

Installment II: Capco Regulatory Reform Series: Controlling Volume and Flow

The flash crash of U.S. stock markets on May 6, 2010, intensified the regulatory reform focus on controlling trading volume and flow. On that day, a slight downward slide became a plunging spiral as algorithmic and high-frequency trading routines took over and started working across different exchanges.

Trading is now so heavily automated that market-shaking events can happen in milliseconds. Regulators have already moved to introduce controls to handle “fat-finger” erroneous trades and anomalous algorithmic behavior. They are certain to try and manage trading speed, identify clear mistakes, and throttle back volume to prevent disruptive events in the future.

The question is how they should and will go about it. One approach, instituting circuit breaker triggers, was tested during the May incident. Circuit breakers were, in fact, in place that day, and they did slow the downward movement of the market. But in the end, they were only marginally effective given the conditions of the market and the trading volumes involved.