Market Structure or Traders' Behaviour? An Assessment of Flash Crash Phenomena and their Regulation based on a Multi-agent Simulation

This paper aims at studying the flash crash caused by an operational shock with different market participants. We reproduce this shock in artificial market framework to study market quality in different scenarios, with or without strategic traders. We show that traders’ srategies influence the magnitude of the collapse. But, with the help of zero-intelligence traders framework, we show that despite the absence of market makers, the order-driven market is resilient and favors a price recovery. We find that a short-sales ban imposed by regulator reduces short-term volatility.