: 641 The Reg NMS, promulgated and described by the United States Securities and Exchange Commission, was intended to assure that investors received the best price executions for their orders by encouraging competition in the marketplace, created attractive new opportunities for high-frequency-traders. financial regulations into Regulation NMS, designed to modernize and strengthen the United States National Market System for equity securities. : 1 At the time of the flash crash, in May 2010, high-frequency traders were taking advantage of unintended consequences of the consolidation of the U.S. Twenty minutes later, by 3:07 p.m., the market had regained most of the 600-point drop. At 2:42 p.m., with the Dow down more than 300 points for the day, the equity market began to fall rapidly, dropping an additional 600 points in 5 minutes for a loss of nearly 1,000 points for the day by 2:47 p.m. stock markets opened and the Dow was down, and trended that way for most of the day on worries about the debt crisis in Greece. They also show that 2010, while infamous for the flash crash, was not a year with an inordinate number of breakdowns in market quality. They show that breakdowns in market quality (such as flash crashes) have occurred in every year they examined and that, apart from the financial crisis, such problems have declined since the introduction of Reg NMS. Gao and Mizrach studied US equities over the period of 1993–2011. Some recent peer-reviewed research shows that flash crashes are not isolated occurrences, but have occurred quite often. In May 2014, a CFTC report concluded that high-frequency traders "did not cause the Flash Crash, but contributed to it by demanding immediacy ahead of other market participants". Furthermore, he concluded that by April 2015, traders can still manipulate and impact markets in spite of regulators and banks' new, improved monitoring of automated trade systems. Traders Magazine journalist, John Bates, argued that blaming a 36-year-old small-time trader who worked from his parents' modest stucco house in suburban west London for sparking a trillion-dollar stock market crash is "a little bit like blaming lightning for starting a fire" and that the investigation was lengthened because regulators used "bicycles to try and catch Ferraris". Sarao began his alleged market manipulation in 2009 with commercially available trading software whose code he modified "so he could rapidly place and cancel orders automatically". The Commodity Futures Trading Commission (CFTC) investigation concluded that Sarao "was at least significantly responsible for the order imbalances" in the derivatives market which affected stock markets and exacerbated the flash crash. Spoofing, layering, and front running are now banned. These orders amounting to about "$200 million worth of bets that the market would fall" were "replaced or modified 19,000 times" before they were cancelled. Among the charges included was the use of spoofing algorithms just prior to the flash crash, he placed orders for thousands of E-mini S&P 500 stock index futures contracts which he planned on cancelling later. Department of Justice laid "22 criminal counts, including fraud and market manipulation" against Navinder Singh Sarao, a British financial trader. On April 21, 2015, nearly five years after the incident, the U.S. New regulations put in place following the 2010 flash crash proved to be inadequate to protect investors in the August 24, 2015, flash crash - "when the price of many ETFs appeared to come unhinged from their underlying value" - and ETFs were subsequently put under greater scrutiny by regulators and investors. : 3 A CFTC 2014 report described it as one of the most turbulent periods in the history of financial markets. The prices of stocks, stock index futures, options and exchange-traded funds (ETFs) were volatile, thus trading volume spiked. It was also the second-largest intraday point swing (difference between intraday high and intraday low) up to that point, at 1,010.14 points. The Dow Jones Industrial Average had its second biggest intraday point decline (from the opening) up to that point, plunging 998.5 points (about 9%), most within minutes, only to recover a large part of the loss. Stock indices, such as the S&P 500, Dow Jones Industrial Average and Nasdaq Composite, collapsed and rebounded very rapidly.
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