This is interesting because it gives them a huge incentive to prevent this from happening again, if it costs them millions of dollars each time. I wonder what changes they will institute?
Presumably a circuit breaker. Many exchanges have these now. The Japanese stock exchange has a particularly nice one which pauses every 3% for people to think about what they are doing. That makes stop loss orders behave more in line with people's expectations.
If the index (presumably the Nikkei, similar to the S&P 500) drops 3% in a single day, the stock exchange will stop all trading for a period of time.
This gives people the chance to cool off and not sell blindly in a panic, hopefully returning behavior to normal.
It also gives people the chance to intercept automated systems (stop-loss orders, things like that) if it's clear that e.g. it's a "flash crash" and not a more legitimate (for lack of a better term) drop.
It's a circuit breaker in the same way that a regular one works: It stops all activity (all trading) in order to protect the system (the economy) in the event that too much current is flowing through (too many sell orders, or too much volatility in the market).
1. Rejecting the orders that will wipe out the order book.
2. Doing something hedge-fundy. Becoming counterparty or running the darkpool that let's other people jump on that.
3. Do nothing - there is now an incredible amount of limit orders from people kicking themselves for not doing something like that earlier (I've got a few:P).
> 1. Rejecting the orders that will wipe out the order book.
So, allow speculators to place as many bets as they want and prevent people who want out from getting out? Let everyone in, and when they become over-leveraged, prevent them from escaping? Rejecting sell orders (which can cause these things, if they're large enough) is not an exchange, but some form of casino.