FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.
Market structure can be likened to an offensive line in football – you only notice it when it breaks down.
To that end, the early 2010s weren’t a great time for US market structure.
The flash crash in 2010 and algos gone wild at Knight Capital and the glitchy Facebook IPO in 2012 were the most publicized misfires. They were followed by trading freezes in 2013 and 2014 and a lunchtime trading halt in 2015.
Bear in mind that this time period followed the global financial crisis of 2008-2009, when many people in the world were convinced that the financial system was rigged and out to get them. And it was right when Michael Lewis wrote Flash Boys – the book about high-frequency trading that told people the financial system was rigged and out to get them.
There was another initial public offering that didn’t go well during this period. This fiasco was much less publicized than the IPO of giant, household name Facebook, but it was arguably even more interesting, because as a stock exchange company, it was quite meta (small m).
On March 23, 2012, BATS Global Markets was forced to halt trading, and then withdraw its IPO. This happened after BATS shares, priced at $16, opened at $15.25 – this drop triggered programmatic sell orders, and then chaos ensued and shares were quoted as low as $0.04.
But as they say, all’s well that ends well. BATS regrouped, purchased rival exchange operator Direct Edge in 2014, and then successfully IPO’d in 2016 before itself being acquired by Cboe Global Markets in 2017.
And the same can be said for US market structure, broadly speaking. To be sure,there will always be glitches and problems and nothing runs perfectly smooth. But for the past 10 years there has been nothing like the flash crash that saw the Dow Jones Industrial Average drop 9% within a matter of minutes; the software error that took down the established Knight Capital; or the substandard IPO of one of the best-known companies on the planet.
The market ecosystem – exchanges, market makers, brokers, technology providers, and asset managers – are happy to stay out of the headlines.
