Unfortunately and surprisingly, although the EU MIFID II takes bold steps to avoid disorderly trading conditions (or disorderly markets), it fails to provide a clear and precise definition for such term.
According to Nasdaq, a disorderly market is defined as: "A characterization of market conditions whereby there is excessive volatility at a time when there is no news. The volatility is often caused by order imbalances."
A flash crash is an extreme form of disorderly trading conditions, in which the price of one or more securities fall abruptly, in a matter of seconds or milliseconds, with no fundamental reason (no news nor events).
Disorderly markets can be caused by a different of reasons, including:
- Reckless trading;
- Fat finger error;
- Intentionally manipulative action;
- HFT momentum trading;
- Spoofing.
Some of the main flash crashes witnessed over the past years include:
- 2010 Flash Crash;
- 2011 JPY Flash Crash;
- 2014 US Treasuries Flash Crash;
- 2015 CHF Flash Crash;
- 2016 GBP Flash Crash;
- 2018 Dow Futures Flash Crash;
- 2019 JPY Flash Crash.
Note that flash crashes were much more infrequent before 2010 than they are today, and that may be explained by the growing of fast and automated trading
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