Now let's address the blip down.
When someone hits market with a big order, they take out all bids at the front of the order book. After this, the order book is not populated with much depth. Hence, once it sweeps through the front, it may have to travel 100 ticks just to hit a 2 lot, before moving on and taking out all the rest of the thin liquidity. At a point, volume is going to come in because it has gone way too far and send it back the other way sharply (generally a statistical arbitrage bot). The close of the night was only where price was before the error.
At the same time, bots and prop traders are going to quickly go long 'risk off' plays such as the yen. Market makers will pull their books because their models no longer work due to the misfiring of all the algo bots that go off on such an error. And you get a global mess. It's simply a global system of which one giant fark up can create a mess amongst traders and other algos.
Mistakes like this happen, in the Australian market, it happened towards the end of 2008 when liquidity was thin approaching Christmas and orders were 'busted', otherwise known as cancelled' outside a certain range which is already pre-determined in exchange law (same as orders on NASDAQ stocks were busted this time, it is basically a poor version of the 'limit up or limit down' law). Only difference is this was in the the S&P so it affected the global markets, but mistakes like this have happened before and no, it's not a conspiracy.
When someone hits market with a big order, they take out all bids at the front of the order book. After this, the order book is not populated with much depth. Hence, once it sweeps through the front, it may have to travel 100 ticks just to hit a 2 lot, before moving on and taking out all the rest of the thin liquidity. At a point, volume is going to come in because it has gone way too far and send it back the other way sharply (generally a statistical arbitrage bot). The close of the night was only where price was before the error.
At the same time, bots and prop traders are going to quickly go long 'risk off' plays such as the yen. Market makers will pull their books because their models no longer work due to the misfiring of all the algo bots that go off on such an error. And you get a global mess. It's simply a global system of which one giant fark up can create a mess amongst traders and other algos.
Mistakes like this happen, in the Australian market, it happened towards the end of 2008 when liquidity was thin approaching Christmas and orders were 'busted', otherwise known as cancelled' outside a certain range which is already pre-determined in exchange law (same as orders on NASDAQ stocks were busted this time, it is basically a poor version of the 'limit up or limit down' law). Only difference is this was in the the S&P so it affected the global markets, but mistakes like this have happened before and no, it's not a conspiracy.