May 6'th 2010 Flash Crash Analysis Continuing Developments - Did Quote Stuffing Cause the Flash Crash? Publication Date: 09-08-2010 Back to Table Of Contents Although quote-stuffing might not have been the cause of the flash-crash, the crash certainly would have been much less severe (or might not have occurred), if quote stuffing wasn't occurring. This is a subtle, but important distinction. It is well known that many systems were overloaded on that day -- and approx. 40% of the quotes would not have been present if a minimum quote life rule of 50ms was in place. We decided to run an analysis to see how much less traffic would be present if the 50ms rule (which we recommended in our initial Flash Crash report) would have been in place:   Methodology: Quotes and trades are summed for each reporting exchange for each stock. After 1 second elapses, take the difference between the quote count and trade count for each reporting exchange for each stock. (since a quote that generates a trade is certainly valid, you subtract them out for a true "pure" quote count number). If that difference is greater than 20 (there are 20 intervals of 50ms in one second), then accumulate the amount that exceeds 20. The dark blue line ("with 50ms rule") is plotted after subtracting out the accumulated amount each second. Inquiries: pr@nanex.net Publication Date: 09-08-2010 http://www.nanex.net This report and all material shown on this website is published by Nanex, LLC and may not be reproduced, disseminated, or distributed, in part or in whole, by any means, outside of the recipient's organization without express written authorization from Nanex. It is a violation of federal copyright law to reproduce all or part of this publication or its contents by any means. This material does not constitute a solicitation for the purchase or sale of any securities or investments. The opinions expressed herein are based on publicly available information and are considered reliable. However, Nanex makes NO WARRANTIES OR REPRESENTATIONS OF ANY SORT with respect to this report. Any person using this material does so solely at their own risk and Nanex and/or its employees shall be under no liability whatsoever in any respect thereof.