Flash Crash

DEFINITION of 'Flash Crash'

The quick drop and recovery in securities prices that occurred shortly after 2:30pm Eastern Standard Time on May 6, 2010. Initial reports that the crash was caused by a mistyped order proved to be erroneous, and the causes of the flash crash remain unknown. Both the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have investigated the incident.

BREAKING DOWN 'Flash Crash'

The SEC and CFTC released a preliminary report on the flash crash incident on May 18, 2010. The report gave several working hypotheses, but failed to identify a single cause for the incident. Securities exchanges canceled 21,000 trades that were executed at unexpectedly low prices during the crash. On June 10, 2010, the SEC voted unanimously to enact new rules which automatically stop trading for any stock in the S&P 500 whose price changes by more than 10% in any five-minute period.