as I understand it, the flash crash of may 2010 was by a bug in the algo that said "in order to allow the market to absorb a large order, simply divide it into X chunks and put them on the market one at a time". The bug was that this algorithm worked if your total shares T were small enough that T/X didn't affect the market. But on that day, T was so big that T/X still moved the market, and the algo didn't take that into consideration. You could protect against this by having sanity post-checks, but once something hits the market there's basically no CTRL-Z button.
One interesting thing about the flash crash was that the original "stock" wasn't a stock at all, but S&P e-minis, which are tied to a whole cross-section of stocks but are on an exchange that is mostly traded by pros. We have circuit-breakers now on individual stocks that halt trading if a single stock moves too much too fast, but that won't be effective if the whole index gets pushed down like it did that day.
One interesting thing about the flash crash was that the original "stock" wasn't a stock at all, but S&P e-minis, which are tied to a whole cross-section of stocks but are on an exchange that is mostly traded by pros. We have circuit-breakers now on individual stocks that halt trading if a single stock moves too much too fast, but that won't be effective if the whole index gets pushed down like it did that day.