The May 6 Flash Crash continues to fascinate Wall Street and its regulators. It's been six months and in the minds of many, the industry has learned a lot. Unfortunately, the precise causes of the Flash Crash remain a mystery. The controversy over the SEC-CFTC report underscores that. 

All that said, some positive steps have been taken that just might make single-stock Flash Crashes--perhaps the big Flash Crash can best be seen as a cascade of single-stock crashes--less likely. We don't have a grand solution, but we are progressing.   

Single-stock circuit breakers remain in place; the pilot program doesn't expire until Dec. 10. These breakers are intended to halt trading of a stock for five minutes if a stock's price changes 10 percent within five minutes. Since they've been put in place, the breakers have been triggered 15 times. And for the most part, they seemed to do the trick. "And while we are likely to modify them based on our experience, we believe they have worked well to protect investors who rely on the financial markets price discovery function and to limit the effect of erroneous quotes," SEC Chief Mary Schapiro said in a prepared speech.

That combined with new rules about how and when to break erroneous trades and the new ban on stub quotes certainly get at some symptoms of the Flash Crash. 

Still, while single-stock breakers have been anything but a failure, questions remain. The ability to coordinate breakers over multiple markets and ATSs has been rightly questioned. And some have suggested that price banding--the so-called limit up/limit down approach used in the futures market--would be a better solution. My hunch is that we'll see some sort of melding between price bands and circuit breakers over time.  

The so-called ban on "naked" sponsored access can also be seen as part of the emerging solution. The idea that big, aggressive, high-frequency traders should be able to directly access markets without any risk controls imposed upon their orders has struck many as foolish, and the rule has been gerenally welcomed, though some high-frequency firms are scrambling a bit. Some have suggested that the enforcement mechanism needs to be revisited, as the new risk management tools offered by broker-dealers do not require much vetting for effectiveness. We'll have to see how the rule is implemented to get an idea of whether such controls will actually make a difference. Still, the idea in theory is right on. 

So, it's fair to say the system has responded to the Flash Crash and made the chances of a repeat less likely. How much less likely is unclear, and opinions run a wide gamut. 

The biggest regulatory battles lie ahead. Perhaps the biggest battle will center on how to ensure that market centers offer enough liquidity to keep the markets functioning even in times of distress. Should market makers be given more responsibility and be required to stay in the saddle when times get tough? Should more traders be required to be market makers? This gets to the heart of the issue--which frankly always crops up in the wake of crashes, flash or not--how to ensure liquidity when it is most needed. 

The major question is where our markets are heading as a system. Some think it is high time we redefine our market structure for the microsecond era. Can these initial steps be seen as the beginning of that effort--if not a Big Bang then a big step forward? - Jim