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1、5RegulatoryHangoverThechangesweresubtleatfirst,butthenitfeltlikeanewworldonWallStreet.•Volumesbegantoexplode.InJune2007,justbeforeRegNMSwasimplemented,averagedailyvolumeacrossallexchangeswas5.6billionsharesperday.Twoyearslater,inJune2009,ithadincreasedmorethan70%,to9.6billion.1•Stocksw
2、ere“flickering”more.Quoteswerechangingrapidlywithoutanytradesoccurring.Bidsoroffersdisappearedtheinstantanorderwasroutedtothem.Tradinginanykindofsizewasbecomingextremelydifficult.•Themarketwasbecominglesspersonal.Institutionalorderswerebeingfedintoalgorithmictradingsystems,whichbrokeup
3、theordersintosmallerpiecessentintothemarketthrough-outtheday.Asthesealgosreplacedblocktrading,theflooroftheNYSEwasnotasrelevant.Brokersandclientsweretalkingtoeachotherless.•HFTswerehavingafieldday.Whilemanyinstitutionalinves-torsthoughttheywerehidingtheirintentionsbehindthealgos,theywe
4、releavingabigfattrailofdata“cookiecrumbs”thattheHFTswerequicktoidentifyandprofitfrom.ThebiggestchangeswerecenteredontheNYSEasitmorphedfromaslow,quote-drivenmarkettoafast,automatedcomputerservice.BeforeRegNMS,HFTswerelargelyconfinedtotradingNASDAQstocksbecauseHFTscouldworktheirstrategie
5、sinonly8384BrokenMarketsfullyautomatedfastmarkets.Now,anentirenewsetoflarge,liquidstocks—perfectforHFTstrategies—openedupforthem.Wenoticedthesechangesimmediatelyandwroteapaperin2008titled“ToxicEquityTrading”tokeepourclientsinformed:2Retailandinstitutionalinvestorshavebeenstunnedatrecen
6、tstockmarketvolatility.Thegeneralthinkingisthateverythingisrelatedtotheglobalfinancialcrisis,starting,forthemostpart,inAugust2007,whentheVolatilityIndex,orVIX,startedtoclimb.Webelieve,however,thattherearemorefundamentalreasonsbehindtheexplosionintradingvolumeandthespeedatwhichstockpric
7、esandindexesarechanging.Ithastodowiththewayelectronictrading,thenewfor-profitexchangesandECNs,andtheSEC’sRegulationNMShaveallcometogetherinunex-pectedways,starting,coincidently,inlatesummer2007.Littledidweknow.TheFlashOrderControversyInsummer2009,theflashordercontroversyemerged.Flash
