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Despite the modesty of the losses incurred, many market participants and regulators found the flash crash deeply unnerving, and I think they were right to do so. What troubles me most about the episode is not something that happened, nor even something that was said, but something that was not said. Alison Crosthwait’s posting elicited only five comments from other TABB forum members, and none disagreed with her judgment that five seconds was ‘ample time for market participants to consider their positions’. She was certainly right to identify the triggering of the Stop Logic Functionality as the turning point, and the stabilisation of futures prices after the five-second pause shows that she was correct: five seconds was enough time. But bear in mind that she was talking about human beings coming to decisions and not computer systems recalibrating themselves: we don’t ordinarily talk of computers ‘considering’ things and ‘regaining confidence’. This is a situation that in the terminology of the organisational sociologist Charles Perrow is one of ‘tight coupling’: there is very little ‘slack’, ‘give’ or ‘buffer’, and decisions need to be taken in what is, on any ordinary human scale, a very limited period of time. It takes me five seconds to blow my nose.
