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Incident 28: 2010 Market Flash Crash

Description: A modified algorithm was able to cause dramatic price volatility and disrupted trading in the US stock exchange.

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Entities

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Alleged: Navinder Sarao , Waddell & Reed and Barclays Capital developed and deployed an AI system, which harmed Market Participants.

Incident Stats

Incident ID
28
Report Count
30
Incident Date
2010-05-08
Editors
Sean McGregor
Applied Taxonomies
GMF, CSETv0, CSETv1, MIT

CSETv1 Taxonomy Classifications

Taxonomy Details

Incident Number

The number of the incident in the AI Incident Database.
 

28

GMF Taxonomy Classifications

Taxonomy Details

Potential AI Technology Snippets

One or more snippets that justify the classification.
 

(Snippet Text: The May 6, 2010, Flash Crash,[1][2] also known as the Crash of 2:45, the 2010 Flash Crash or simply the Flash Crash, was a United States trillion-dollar[3] stock market crash, which started at 2:32 p.m. EDT and lasted for approximately 36 minutes., Related Classifications: Regression), (Snippet Text: On May 6, 2010, the primary market makers in the stock market just stopped automatically taking the other side of everyone else's trades. , Related Classifications: Regression)

Potential AI Technology Classification Discussion

Free text with comments justifying the chosen classification (e.g. based on information on selected snippets and technical analysis), if needed.
 

Regression: This is valid only if prices were automatically suggested by the software: extreme / over-optimized solutions proposed by the price system.

CSETv0 Taxonomy Classifications

Taxonomy Details

Physical System

Where relevant, indicates whether the AI system(s) was embedded into or tightly associated with specific types of hardware.
 

Software only

Level of Autonomy

The degree to which the AI system(s) functions independently from human intervention. "High" means there is no human involved in the system action execution; "Medium" means the system generates a decision and a human oversees the resulting action; "low" means the system generates decision-support output and a human makes a decision and executes an action.
 

Medium

Nature of End User

"Expert" if users with special training or technical expertise were the ones meant to benefit from the AI system(s)’ operation; "Amateur" if the AI systems were primarily meant to benefit the general public or untrained users.
 

Amateur

Public Sector Deployment

"Yes" if the AI system(s) involved in the accident were being used by the public sector or for the administration of public goods (for example, public transportation). "No" if the system(s) were being used in the private sector or for commercial purposes (for example, a ride-sharing company), on the other.
 

No

Data Inputs

A brief description of the data that the AI system(s) used or were trained on.
 

Stock Price, trading volume

Laws Implicated

Relevant laws under which entities involved in the incident may face legal liability as a result of the incident.
 

Fraud

MIT Taxonomy Classifications

Machine-Classified
Taxonomy Details

Risk Subdomain

A further 23 subdomains create an accessible and understandable classification of hazards and harms associated with AI
 

7.3. Lack of capability or robustness

Risk Domain

The Domain Taxonomy of AI Risks classifies risks into seven AI risk domains: (1) Discrimination & toxicity, (2) Privacy & security, (3) Misinformation, (4) Malicious actors & misuse, (5) Human-computer interaction, (6) Socioeconomic & environmental harms, and (7) AI system safety, failures & limitations.
 
  1. AI system safety, failures, and limitations

Entity

Which, if any, entity is presented as the main cause of the risk
 

Human

Timing

The stage in the AI lifecycle at which the risk is presented as occurring
 

Post-deployment

Intent

Whether the risk is presented as occurring as an expected or unexpected outcome from pursuing a goal
 

Intentional

Incident Reports

Reports Timeline

+1
2010 Flash Crash
+1
The 2010 Flash Crash: What Caused It and How to Prevent the Next One
What Really Caused the Flash CrashThe 2010 'flash crash': how it unfoldedThe lasting impact of the 2010 flash crash+15
What happened during the Flash Crash?
+1
What actually caused 2010 "Flash Crash"
Top 3 Financial Crashes Caused by High-frequency Trading Algorithms2010 Flash CrashThe 2010 Flash Crash+2
Herding and flash events: Evidence from the 2010 Flash Crash
2010 Flash Crash

2010 Flash Crash

en.wikipedia.org

The 2010 Flash Crash: What Caused It and How to Prevent the Next One

The 2010 Flash Crash: What Caused It and How to Prevent the Next One

aol.com

Findings Regarding the Market Events of May 6, 2010

Findings Regarding the Market Events of May 6, 2010

sec.gov

What Really Caused the Flash Crash

What Really Caused the Flash Crash

cnbc.com

The 2010 'flash crash': how it unfolded

The 2010 'flash crash': how it unfolded

theguardian.com

The lasting impact of the 2010 flash crash

The lasting impact of the 2010 flash crash

cnbc.com

What happened during the Flash Crash?

What happened during the Flash Crash?

telegraph.co.uk

Guy Trading at Home Caused the Flash Crash

Guy Trading at Home Caused the Flash Crash

bloomberg.com

UK speed trader arrested over role in 2010 'flash crash'

UK speed trader arrested over role in 2010 'flash crash'

reuters.com

The 2010 ‘flash crash’ now has a criminal suspect

The 2010 ‘flash crash’ now has a criminal suspect

marketwatch.com

The great flash crash of 2010: What happened to the Dow Jones and what is Navinder Singh Sarao supposed to have done?

The great flash crash of 2010: What happened to the Dow Jones and what is Navinder Singh Sarao supposed to have done?

cityam.com

Trader Arrested in Manipulation That Contributed to 2010 ‘Flash Crash’

Trader Arrested in Manipulation That Contributed to 2010 ‘Flash Crash’

nytimes.com

How an Indian-origin trader caused the 2010 ‘flash crash’

How an Indian-origin trader caused the 2010 ‘flash crash’

thehindu.com

British Trader Navinder Sarao Arrested Over 2010 Flash Crash

British Trader Navinder Sarao Arrested Over 2010 Flash Crash

forbes.com

The 'flash crash' trader: Here's how much he allegedly made.

The 'flash crash' trader: Here's how much he allegedly made.

fortune.com

Wall Street 'Flash crash' explained: How 'the Hound of Hounslow' could have caused one of the scariest days in stock market history

Wall Street 'Flash crash' explained: How 'the Hound of Hounslow' could have caused one of the scariest days in stock market history

independent.co.uk

Why the Cause of the 2010 Stock Market Flash Crash Really Matters

Why the Cause of the 2010 Stock Market Flash Crash Really Matters

nautil.us

'Flash Crash' arrest shakes investors' confidence

'Flash Crash' arrest shakes investors' confidence

usatoday.com

UK-Indian Navinder Singh Sarao arrested over role in 2010 'Flash Crash'

UK-Indian Navinder Singh Sarao arrested over role in 2010 'Flash Crash'

economictimes.indiatimes.com

2010 Flash Crash Arrest Motivated By Greed

2010 Flash Crash Arrest Motivated By Greed

seekingalpha.com

'Flash Crash' a Perfect Storm for Markets

'Flash Crash' a Perfect Storm for Markets

graphics.wsj.com

"The flash crash" five years later

"The flash crash" five years later

marketplace.org

What actually caused 2010 "Flash Crash"

What actually caused 2010 "Flash Crash"

businessinsider.com

Navinder Sarao: The man accused of causing the US market to crash

Navinder Sarao: The man accused of causing the US market to crash

bbc.com

Top 3 Financial Crashes Caused by High-frequency Trading Algorithms

Top 3 Financial Crashes Caused by High-frequency Trading Algorithms

themerkle.com

2010 Flash Crash

2010 Flash Crash

corporatefinanceinstitute.com

The 2010 Flash Crash

The 2010 Flash Crash

gffbrokers.com

Herding and flash events: Evidence from the 2010 Flash Crash

Herding and flash events: Evidence from the 2010 Flash Crash

sciencedirect.com

Herding and Flash Events: Evidence From the 2010 Flash Crash

Herding and Flash Events: Evidence From the 2010 Flash Crash

papers.ssrn.com

if reforms aren't ramped up, the next one could spell global disaster

if reforms aren't ramped up, the next one could spell global disaster

theconversation.com

2010 Flash Crash
en.wikipedia.org · 2010

The DJIA on May 6, 2010 (11:00 AM - 4:00 PM EDT)

The May 6, 2010, Flash Crash,[1][2] also known as the Crash of 2:45, the 2010 Flash Crash or simply the Flash Crash, was a United States trillion-dollar[3] stock market crash, which started a…

The 2010 Flash Crash: What Caused It and How to Prevent the Next One
aol.com · 2010

Fragmentation among stock exchanges . In 1987, when we had the crash that took 22.6% off the Dow, trading execution was much slower and more concentrated. Back then, 90% of stock trading occurred on the New York Stock Exchange (NYSE). In 20…

Findings Regarding the Market Events of May 6, 2010
sec.gov · 2010

On May 6, 2010, the prices of many U.S.-based equity products experienced an extraordinarily rapid decline and recovery. That afternoon, major equity indices in both the futures and securities markets, each already down over 4% from their p…

What Really Caused the Flash Crash
cnbc.com · 2011

Here's the basic outline of what caused the biggest one-day point decline in the history of the Dow Jones Industrial Average. On May 6, 2010, the primary market makers in the stock market just stopped automatically taking the other side of …

The 2010 'flash crash': how it unfolded
theguardian.com · 2012

In just 20 minutes the New York Stock Exchange had witnessed it’s biggest stock plunge in decades, all traced to one gargantuan sell order

It was 6 May 2010. In the UK it was general election day, in the US,Wall Street was gripped by mounti…

The lasting impact of the 2010 flash crash
cnbc.com · 2014

The Dow Jones Industrial Average slumped nearly 1,000 points in a matter of minutes in the flash crash of 2010, sending traders into a panic and inciting scrutiny of the U.S. equities markets that's still being felt four years later.

The Ma…

What happened during the Flash Crash?
telegraph.co.uk · 2015

On Thursday May 6, 2010, the US stock market collapsed , wiping billions off some of the world's biggest companies.

The Dow Jones Industrial Average, already down more than 4pc from the previous day's close, plummeted a further 5pc to 6pc i…

Guy Trading at Home Caused the Flash Crash
bloomberg.com · 2015

Hey look, they caught the guy who caused the flash crash of 2010! His name is Navinder Singh Sarao, and he lives in London and in 2009 he asked someone to help him build a spoofing robot:

On or about June 12, 2009, SARAO sent an email to a …

UK speed trader arrested over role in 2010 'flash crash'
reuters.com · 2015

WASHINGTON (Reuters) - A high-frequency trader was arrested in London over his alleged role in the May 2010 “flash crash” that briefly wiped out nearly $1 trillion in market value, the first time authorities have blamed manipulation for the…

The 2010 ‘flash crash’ now has a criminal suspect
marketwatch.com · 2015

Fox Business Was one trader responsible for the flash crash?

WASHINGTON (MarketWatch) — The 2010 “flash crash” — in which the Dow industrials sank by around 1,000 points before quickly recovering — has been debated for years. But on Tuesday…

The great flash crash of 2010: What happened to the Dow Jones and what is Navinder Singh Sarao supposed to have done?
cityam.com · 2015

Jessica Morris

The "flash crash" caused the Dow to fall as much as nine per cent (Source: Getty)

British trader Navinder Singh Sarao has been arrested, charged and is facing extradition to the United States over his role in the "flash crash…

Trader Arrested in Manipulation That Contributed to 2010 ‘Flash Crash’
nytimes.com · 2015

Five years ago, the global financial system was rocked by the “flash crash,” 15 minutes of chaos that shook the world’s biggest markets and prompted investors both big and small to question how such a vital part of the economy could be brou…

How an Indian-origin trader caused the 2010 ‘flash crash’
thehindu.com · 2015

An Indian-origin futures trader has been arrested in the U.K. and faces extradition to the U.S. for his alleged role in the May 2010 “flash crash” which wiped billions of dollars off the value of U.S. shares in minutes.

Navinder Singh Sarao…

British Trader Navinder Sarao Arrested Over 2010 Flash Crash
forbes.com · 2015

The mystery over the May 6, 2010 Flash Crash took a turn on Tuesday when the Department of Justice said it arrested Navinder Singh Sarao, a little known trader working from his home near London's Heathrow Airport, for allegedly playing a ke…

The 'flash crash' trader: Here's how much he allegedly made.
fortune.com · 2015

Nearly five years after the so-called “flash crash”—when the market dropped hundreds of points in the span of a few minutes on May 6, 2010—authorities have arrested a trader that they believe helped cause the swoon.

But the alleged culprit,…

Wall Street 'Flash crash' explained: How 'the Hound of Hounslow' could have caused one of the scariest days in stock market history
independent.co.uk · 2015

What was the Flash Crash?

One of the most scary and bizarre days in Wall Street’s history. On 6 May 2010, the Dow Jones Industrial Average Index plummeted by 6 per cent in a matter of minutes - an unprecedented single-day fall. The shares o…

Why the Cause of the 2010 Stock Market Flash Crash Really Matters
nautil.us · 2015

At about 2:30pm on May 6, 2010, an asset management firm began executing a series of orders on the Chicago Mercantile Exchange. Located in Overland Park, Kansas, Waddell & Reed was (and is) one of the oldest mutual fund companies in America…

'Flash Crash' arrest shakes investors' confidence
usatoday.com · 2015

CLOSE The cause of the 2010 Flash Crash keeps changing, and the latest who-done-it conclusion has met with skepticism on Wall Street. Jason Allen

Investors question how a small-fry trader moves markets, and why regulators let it go on so lo…

UK-Indian Navinder Singh Sarao arrested over role in 2010 'Flash Crash'
economictimes.indiatimes.com · 2015

From a modest stucco house in suburban west London, where jetliners roar overhead on their approach to Heathrow Airport, a small-time trader was about to play a hand in one of the most harrowing moments in Wall Street history.Navinder Singh…

2010 Flash Crash Arrest Motivated By Greed
seekingalpha.com · 2015

Whistleblower Program

The past week we have made markets safer by arresting the dangerous flash crash villain who was a threat to national security and the health of the entire financial market system. Like I always say when in doubt follow…

'Flash Crash' a Perfect Storm for Markets
graphics.wsj.com · 2015

The flash crash has proven one of the most mysterious market events in recent history. Many observers still believe the event hasn't been fully investigated. Their view is fueled in part by new allegations that a London trader's manipulativ…

"The flash crash" five years later
marketplace.org · 2015
  • pencer Platt/Getty Images

Listen To The Story Marketplace Embed Code

May 6, 2015, marks the five-year anniversary of the so-called ‘flash crash’ on the New York Stock Exchange. That day, the Dow Jones Industrial Average plummeted more tha…

What actually caused 2010 "Flash Crash"
businessinsider.com · 2016

Reuters The search for causation over the May, 2010 "flash crash," a one hour near 1,000 point loss and recovery on the Dow Jones Industrial Average, is a complex topic but one important to accurately document.

Such quantitative market mish…

Navinder Sarao: The man accused of causing the US market to crash
bbc.com · 2016

Image copyright Getty Images Image caption Navinder Sarao, the so-called "flash crash" day trader has been fighting attempts to extradite him to the US

Navinder Sarao, who traded from his parents' home in Hounslow, west London, has been acc…

Top 3 Financial Crashes Caused by High-frequency Trading Algorithms
themerkle.com · 2017

In the financial world, high-frequency trading has become the new norm. By using trading algorithms and dedicated tools, stock market players can execute trades in milliseconds. The ultimate goal is to increase profits in a near-automated w…

2010 Flash Crash
corporatefinanceinstitute.com · 2018

What is the 2010 Flash Crash?

The 2010 Flash Crash is the market crash occurred on May 6, 2010. During the 2010 crash, leading US stock indices, including the Dow Jones Industrial AverageDow Jones Industrial Average (DJIA)The Dow Jones Indu…

The 2010 Flash Crash
gffbrokers.com · 2018

On May 6, 2010, at approximately 2:32 pm EST, all three U.S. stock indices–The Dow Jones Industrial Index, S&P 500, and the Nasdaq Composite–underwent a massive plunge and a partial rebound over a 36-minute period.

In just a matter of minut…

Herding and flash events: Evidence from the 2010 Flash Crash
sciencedirect.com · 2018

Using intraday data on individual stocks included in the S&P 500 index, we present evidence of herd formation over the duration and aftermath of the Flash Crash on May 6, 2010, while no evidence of herding is observed preceding the event. T…

Herding and Flash Events: Evidence From the 2010 Flash Crash
papers.ssrn.com · 2018

Using intraday data on individual stocks included in the S&P 500 index, we present evidence of herd formation over the duration and aftermath of the Flash Crash on May 6, 2010, while no evidence of herding is observed preceding the event. T…

if reforms aren't ramped up, the next one could spell global disaster
theconversation.com · 2019

In California, people fear the “big one” – an earthquake of such magnitude that it could wipe the state off the map. They look nervously at the intense seismic tremors from previous earthquakes and fear it is only a matter of time. The fina…

Variants

A "variant" is an incident that shares the same causative factors, produces similar harms, and involves the same intelligent systems as a known AI incident. Rather than index variants as entirely separate incidents, we list variations of incidents under the first similar incident submitted to the database. Unlike other submission types to the incident database, variants are not required to have reporting in evidence external to the Incident Database. Learn more from the research paper.

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