The Inside Scoop On Tuesday's Flash Crash In Home Depot

During Benzinga's #PreMarket Prep Broadcast every morning, a variety of different topics are discussed. Besides covering headline stocks, breaking news, earnings releases and ratings changes, the crew covers topics in-depth that the mainstream media tends to shy away from.

While the rest of the financial media world glossed over the Flash Crash that occurred at 3:55 p.m. Tuesday, November 18 in the shares of Home Depot Inc HD, co-hosts Joel Elconin and Dennis Dick delved deep in to the intricate details of the event.

Dennis Dick, CFA is an expert in the complexities of HFT and market structure. Dick sits on the Board of the Capital Markets Policy Council at the CFA Institute, and is frequently quoted by major news sources when HFT is the topic.

His fascination with market structure was spawned back on January 4, 2010 when a similar event took place in the shares of Rambus Inc. RMBS. Dick theorized that if the market structure was so fragmented that these mini-flash crashes happen on individual issues, that the entire market may be susceptible to such as a catastrophic event.

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Low and behold, that exact situation came to fruition on May 6, 2010, and created an atmosphere that still scars both large and small investors alike.

Dick emphatically concluded, “This has happened before, it WILL happen again. Rambus was ONE stock today. Imagine if it was the entire market.”

Home Depot Flash Crash Details

1. Home Depot was trading at $96.24 as of 3:55 PM, thus making the 10 percent limit at $86.62. Notice the large prints under $87.00 that took place.

Dick places blame on a “fat finger” and ineffective order-routing (as the order was only sent to NYSE - bypassing better liquidity on the other exchanges) as opposed to the HFT crowd.

2. There was no chance of human intervention by “specialist” or “designated market maker” to validate the size of the order. Things happen fast in an electronic trading world, when you press the sell button, execution is instantaneous.

Watch the rest of the recap to hear Dick's explanation of why the trades under $93.33 were busted (3 percent move with no news) and the ramifications to traders who participated under that level.