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VIX was up about 40% from Monday to Wednesday, on Greece and Portugal and Euro... It was up more than 50% from that level, at one point, on Thursday alone. VIX is generally a lagging indicator, but it's an indicator of "market" fear / "protection" related activity, traded via options or futures.

High-Speed Trading Glitch Costs Investors Billions - CNBC / NYT, 2010 May 07, by Jackie Calmes and Binyamin Appelbaum

“We have a market that responds in milliseconds, but the humans monitoring respond in minutes, and unfortunately billions of dollars of damage can occur in the meantime,” said James Angel, a professor of finance at the McDonough School of Business at Georgetown University.
In recent years, what is known as high-frequency trading — rapid automated buying and selling — has taken off and now accounts for 50 to 75 percent of daily trading volume. At the same time, new electronic exchanges have taken over much of the volume that used to be handled by the New York Stock Exchange.
In fact, more than 60 percent of trading in stocks listed on the New York Stock Exchange takes place on separate computerized exchanges. .....
The Securities and Exchange Commission and the Commodity Futures Trading Commission said they were examining the cause of the unusual trading activity. .....
One official said they identified “a huge, anomalous, unexplained surge in selling, it looks like in Chicago,” about 2:45 p.m. The source remained unknown, but that jolt apparently set off trading based on computer algorithms, which in turn rippled across indexes and spiraled out of control.
Many firms have computers that are programmed to automatically place buy or sell orders based on a variety of things that happen in the markets. Some of the simplest triggers are set off when a stock drops or rises a certain percent in the trading day, or when an index moves a specific amount. .....
Some circuit breakers do exist, a legacy of the reforms made following the 1987 stock market crash, but they only kick in after a huge drop — and only at certain hours. Before 2 p.m., a 10 percent drop in the Dow causes New York Stock Exchange to halt trading for one hour. Between 2 p.m. and 2:30 p.m., the pause shrinks to a half-hour and after 2:30, there is no halt in trading. .....

Why the Trades Were Clearly Erroneous - CNBC, 2010 May 07, by Bob Pisani

All stocks at the NYSE have circuit breakers here called LRPs -- when stocks trade rapidly outside of certain parameters, the designated market makers can slow trading for short periods to allow bids to catch up, something NYSE Chief Duncan Niederauer said earlier on Closing Bell. .....
How did this happen? We don't know if the sudden drop was caused by an erroneous trade, or by a technology malfunction, or if the stock traded away from the NYSE and there were simply no bids.
What we do know is that similar events happened quickly with other stocks. In the most egregious example, Accenture went from $40 to $0.01 in a couple minutes. There were other examples as well.
Again, how could this happen? In one sense, it doesn't matter what caused the drop. These were clearly erroneous trades. Any common sense definition of "erroneous" would tell you that when a stock goes from $40 to $0.01 something is wrong.
After the close, NYSE Arca and Nasdaq said it canceled all trades executed 60 percent away from the market from 2:40pm to 3:00pm, which would include many trades in Accenture.
What's wrong? Trading today -- stocks, bond, or commodities -- it's a combination of technology and judgment.
Clearly there was a little too much technology here and not enough judgment. Where is the duty of care to clients from a broker when a stock goes from $40 to $0.01?
At least the NYSE designated market makers saw something was happening and acted on it. Unfortunately, the way the rules are everyone can ignore them. Reg NMS says all markets must route orders to the best price, and if your market is not automatically accessible, or slows down, people can trade through you with complete impunity. That's what happened. .....

Chicago markets caught in domino effect - Chicago Tribune, 2010 May 06, by Greg Burns

One of the wildest 20 minutes in Wall Street history spilled into Chicago's major markets Thursday, prompting one exchange to declare a series of trades "clearly erroneous," and another to suggest that a hot rumor was wrong. .....
Rather, so many orders were flowing into the all-electronic exchange that its market-making "book" was "exhausted down to the final quote at a penny," noted David Harris, chief executive of the stock exchange.
Under regulations common to all U.S. securities exchanges, trades occurring at those erroneous prices either are canceled or adjusted to a reasonable price, Harris said. Regulators consider sorting those outlying trades afterward a better approach than trying to stop them before they happen.
Meantime, CME Group sought to squelch a rumor that a bank trading system ran amok in its e-mini stock-index futures contracts.
In an unusual statement issued Thursday evening, the Chicago-based company said that stock-index trading by Citigroup Global Markets Inc. "does not appear to be irregular or unusual in light of market activity today." .....
Accenture, Chicago-based utility company Exelon Corp. and Philip Morris International Inc. were among 27 U.S. stocks with at least $50 million in market value that dropped more than 90 percent as U.S. equities tumbled, before recovering by the close. ..... Exelon plummeted to a hundredth of a penny during trading before closing down 4.2 percent, at $41.86. Philip Morris of New York, the world's largest publicly traded tobacco company, sank 96 percent, to $2, before ending at $47, a drop of 3.5 percent. .....

Computers, Not Human Error, Likely Caused Market Meltdown - CNBC, 2010 May 07, by Jeff Cox

Computerized sell programs triggered by global events—rather than trader error or a "fat finger"—appear to have caused Thursday's unprecedented market swing, according to market pros who are reconstructing the nearly 1,000-point stock selloff.
These experts think the intensely accelerated electronic trading was sparked by the Greek debt crisis and other events and not a trader who typed a "b" for billion instead of "m" for million in executing a trade on Thursday.
Friday's market volatility seemed only to confirm that investors are afraid of what lies ahead and are wary of the stock market.
"It wasn't a fat finger," said Dave Lutz, managing director of trading at Stifel Nicolaus in Baltimore. "The markets became unglued...Most of it was centered on the fact that currency markets affected the equity markets."
Not everyone is so sure. Authorities are probing the trading activity and looking to see whether a human mistake or manipulation was at play. .....
"We believe the electronification of markets and the fragmentation of liquidity — stocks trading simultaneously on many exchanges and alternative execution venues — has enhanced the risk of catastrophic meltdowns of excessive volatility," the firm wrote. "We believe instances like yesterday's 1,000 intra-day point sell-off could become much more common if changes are not implemented." .....
"A lot of these (electronic trading) models become very sensitive when volatility is high," said Aaron Gurwitz, managing director and head of global investment strategy at Barclays Wealth in New York. "It's possible that a lot of these models got to a point where they got strong reduce-risk signals, that things are not working right."
"In that context," he continued, "even a small glitch, a slightly overweight finger rather than a fat finger, could have triggered a lot of the things that happened... A lot of very substantial traders become very sensitive. There's not that much difference among these models. We've seen this can be a source of potential systemic risk that really does need to be investigated." .....

How High-Frequency Trading Works - CNBC, 2010 May 07, by Barbara Stcherbatcheff

There was initial speculation of human error. Now there is a focus on computerized trading. ..... High-Frequency Trading systems (HFTs) are computerized trading programs that make money two ways. They place bids to make small amounts of money from liquidity rebates provided by the exchanges, or they make tiny per-share profits. While this is only dealing with fractions of cents per transaction, HFTs together execute trades on billions of shares a day, rendering it extremely profitable.
Supporters of high-frequency systems claim to add essential liquidity. But some critics claim that HFTs have increased the amount of volatility and instability in the markets. .....

Trading System May Have Dangerous Flaw - CNBC, 2010 May 07, by Bob Pisani

..... Fat fingered trade? Computer glitch? It's possible that one of these was the cause of yesterday's drop, but as traders stream into Wall Street, the worry is that this could have happened without a computer glitch or fat fingered trade. ..... That's what happened; once liquidity was removed from the NYSE floor, even for 90 seconds, trading went to markets where there were obviously thin or nonexistent bids. .....
The argument that computers are not in control of the markets, that they are merely programmed by traders, does not hold a lot of water when a stock goes from $40 to $0.01 in a matter of seconds, as happened with Accenture. In other words, there may be a flaw at the heart of the trading system, which is now routinely seeing 6 billion share trading days due to high frequency trading. Yesterday, the NYSE consolidated tape saw 10.7 billion shares changing hands. .....

The Blame Game: NYSE vs. Nasdaq - CNBC, 2010 May 07

..... "Our systems function flawlessly," said Nasdaq CEO Bob Greifeld, citing the fact that Nasdaq-listed stocks Microsoft, Intel and Cisco had modest drops, while NYSE stocks like P&G and Accenture fell off the rails.
"We provided continuous market support for that period of time. The stocks over the NYSE did not enjoy that luxury," Greifeld said. The NYSE "basically walked away from the stock."
Well-known investor Jim Rogers piled on: "Somebody should hang this New York Stock Exchange!" Rogers said. "They claim to be the center of the world's capitalism, of the world's financial markets, you would think that in 2010 they could sort out simple things like electronics." .....