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http://www.minyanville.com/businessmarkets/articles/quants-market-access-dow-1000-algorithms/5/6/2010/id/28158?camp=syndication&from=yahoo

Dow Freefall Shows We Have a Quant Problem
By Michael Davis May 06, 2010 4:30 pm
A 1,000 point drop within minutes was caused by a system error.

Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial).

That move was way too much and over-the-top as the Dow plunged nearly 1,000 points in a couple of minutes this afternoon.

We have a quant problem in this market; to say we dont is ignorance. The S&Ps and Treasuries were moving so fast it was tough to see with the human eye. These programs make the very necessary function of market making obsolete.

While today may have been a market error, moving the worlds largest economy 10% in minutes is way too much. Traders can recover, but such moves have real consequences for many. Fat Finger or not, the quants trade one instrument against another at the speed of light, not based on any fundamentals, but numbers only. The big error is in the system itself, the way its regulated, and the way exchanges cater to algorithmic clients to the detriment of the greater market population. Electronic trading has served many well and allowed equal access to markets by many. Its the type of electronic trading that is allowed that is a major problem. Allowing front-end software firms to have traders write these algorithmic programs that access exchange trading systems is an issue that needs to be examined, as we saw today.

That was freaky! And it could happen again... and it could have been worse!