Mini Flash Crashes : Review, Taxonomy and Policy Responses

We focus on extreme price movements known as mini flash crashes (MFCs). After reviewing the literature, we pro-vide a taxonomy based on a sample of MFCs identified by Nanex on the U.S. financial markets over a three-year period. We detect significant differences between crashes and exchanges. In comparison to ‘up crashes’, we find that ‘down crashes’ exhibit lower absolute returns but have longer duration. We also show that the dynamics of MCF varies across exchanges. For example, the MFCs on ARCA are on average both less severe and shorter in duration than those on the NASDAQ. We finally review all the key implications of MCFs in terms of public policy