Government Intervention on the Market - Assignment Example

The regulatory origins of the flash crash The regulatory origins of the flash crash The flash crash was the major stock crash that occurred in the United States. The government could have contributed the flash crash by the government regulation on the market stock that reduced cash value. This was motivated by the market reforms that were aimed at eliminating markers who aimed at increasing their trading cost by increasing their market spreads. The main marketers created illiquidity in the market.

Market regulations had no instant attempts, which mainly made the market weak for some time. 2. The main cause flash crash was a decline of cash, in relation to market securities proposed by the government (SEC, 2010). Cash dropped suddenly to zero levels and researchers when marketers left in 1962 because of significant finding by market specialists during that time (SEC, 2010). Therefore, prices were destroyed by sudden drop of cash because of strict government regulation. 3. The crash extremely damaged the assurance of stakeholders, who tendered nineteen billion from local equity resources during that time when the increased outflow of cash during the crisis of 2008.

The financial challenge contributed to the current financial crisis affecting the economy.4. The phrase “like a balloon” means that the flash crash in the market is similar to a balloon when squeezed from one point the problem emerges from another point (SEC, 2010). Therefore, as the congress tries to fix the system by adding more regulation, in turn will contribute to several problems instead of solving them (Kramer and Corcoran, 2010). Apart from this, the crash contributed to a expansion with potential long-term impact on economic markets.

It also contributed to proposed ways of controlling future flash crash in the market prices using computerized procedures to control the stock markets. Such crashes happen abruptly and fast spread through the market affecting monetary flows.5. Rules established by the government contributed to the flash crash. Several rules and regulation will make business persons become voracious marketers replaced by machines. This will make the situation worse by not having any support during increase of flash crash.

Therefore, specialists noted that the society needed up creating a cheap price to unknown, difficult situation (Kramer and Corcoran, 2010). In reality, the crash complex the disintegration of market cash undermining the essential price innovation process for evident stocks. The last regulation had been presented to aid the events of large supply market contestants, as well as a lot of cash frequency in market stock (Kramer and Corcoran, 2010). The established collateral limitations in times of extreme short promotion would lead to increase the prices for gradually limited security.

The constraints are likely to reduce market collaterals between traders (SEC, 2010). This will affect the market prices to reflect cash or liquidity ration of current market prices.6. Those that supported Dodd-Frank Bill include the government and the Congress system. Those that opposed his ideas include research specialists like Dennis Berman, who felt that his new ideas would just contribute to several problems in the future (SEC, 2010). ReferencesKramer, H. and Corcoran, J. (2010). “Assessing the shotgun volley of SEC market structure initiatives”, Journal of Securities Law, Regulation & Compliance, 3: 294 306.

Securities and Exchange Commission(SEC) (2010). “Amendments to Regulation SHO”, CFR Part 242 Release No. 34-61595.