An Interview with Danny Riley, @MrTopStep

“The Flash Crash was the one event that really woke people up to the ill effects of electronic trading.”

~ Danny Riley, @MrTopStep

We recently ‘celebrated’ the five year anniversary of the “Flash Crash.”

If you, like many, have been searching for answers to the questions how? or why? or can it be prevented from happening again? – it’s been five long years with little headway.

On the afternoon of May 6, 2010 the S&P 500 fell as much as 8% and the Dow over 1000 points — in a matter of minutes — only to largely regain most of the losses by the close of trading that day. During the melee, major brand name large capitalization stocks like Accenture ($ACN) and Proctor & Gamble ($PG) saw their share prices get pummeled and trades executed at ONE PENNY per share!

flash-crash-dow-popup

Several theories of the cause of the crash were explored and debated ad nauseum:

  • Was it a “fat-finger” trade?
  • Was it a large hedge fund or “whale” putting on a massive directional bet?
  • Is the market’s increasingly decentralized structure to blame?
  • Was it the fault of a high frequency trading algorithm gone haywire?
  • Was there a technical glitch at one of the exchanges?

Ironically(?) in recent days as we approached the five year anniversary of the Flash Crash, news has surfaced that is attempting to pin the blame on ONE guy, an individual operating out of his house in London executing a “spoofing” algorithm. Could this be? And if it’s true, what does it say about our ever globally-connected marketplace? Does it inspire confidence for investors?

It scares me.

In this special “Anniversary Day Episode” of The Must Follow Podcast, I interview long-time Chicago Board of Trade & CME Member and floor trading veteran Danny Riley (@MrTopStep on StockTwits). On that harrowing day, he floated in the center of this angry sea as helmsman of one of the largest order execution desks in the S&P 500 futures pit. As his ship began to take on water, the perfect storm of market risk + execution risk + systemic risk beared down on his struggling crew.

When the clouds passed and the seas calmed, Danny and his team were faced with a life-threatening gash to the hull of the ship as they uncovered an eight million dollar trading error that they would have to absorb.

This and many other great and gut-wrenching stories from the floor of the exchange with Danny Riley:

If you haven’t already, be sure to subscribe to The Must Follow Podcast feed on iTunesSoundcloud, or Stitcher and leave us a review and interview suggestions!

~ Sean McLaughlin, @chicagosean

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