Post by Aditi Bagchi
New information about the cause of a May 2010 “flash crash” in the stock markets is not heartening.
Apparently, the machinations of a single trader drove the market imbalance that precipitated the crash. This may be less bizarre than the original official theory, which attributed the crash to a single trade. But the ability of a single trader to wreak havoc is still disconcerting. Assuming optimistically that a systemic flaw, and not unavoidable institutional constraints, makes it possible for an individual to exercise such power, one might wonder when that flaw will be fixed – even if there is no one in particular to hold accountable for it.
Is our regulatory system better at identifying responsible individuals than the systemic features that create opportunity for calamitous individual conduct? Prosecutors seem to know what they should do with Mr. Sarao. Factual certainty and clear legal direction make it likely he will be held liable for his actions. But empirical uncertainty, unclear regulatory authority and the absence of wrongdoing may delay action on the more important causes of the flash crash.