The algorithm didn't specify a sell price or time frame, resulting in too many trades being put into the market, with not enough liquidity to properly absorb them. A report from the SEC and CFTC indicated that a single trading house attempted to sell $4.5 billion worth of S&P 500 futures. The 'flash crash' saw the Dow Jones drop nearly 1,000 points in a matter of minutes. 'We recognize that the cornerstone of a market is investor confidence,' Nasdaq OMX CEO Robert Greifeld said at the time. Over 30,000 orders were stuck in the system for more than two hours, when they should have been executed or canceled.Ī year later, Nasdaq agreed to pay the SEC a $10 million fine, on top of the $62 million it agreed to pay trading firms that sustained losses during the IPO.
Nasdaq programmers removed a few lines of software code, but that did not fix the root cause of the problem. There was a 'design flaw' in the software that had been missed during testing. Technical glitches left traders in the dark for hours, unclear as to which trades had actually gone through.
The large size proved to be an issue: problems were big and immediate. It was the biggest offering ever for Nasdaq, which had only handled three of the 25 biggest offers ever, including Facebook. Facebook's massive initial public offering on the Nasdaq in May 2012 raised $16 billion.
