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Market regulators are exploring six hypotheses surrounding the May 6 "flash crash"--including the use of stop-loss orders and stub quotes--but they haven't pinpointed a single cause, according to joint report issued Tuesday.

The findings by staffers at the Securities and Exchange Commission and Commodity Futures Trading Commission are the results so far after combing through trade data to determine what caused the Dow Jones Industrial Average to fall nearly 1,000 points before staging a partial recovery.

While they haven't isolated a single cause, they are looking closely at trading in the E-mini S&P 500 futures contract, where the patterns are closely linked to the volatile market behavior during the tumult.

Other things that may have contributed to the market plunge in the report include:

--The use of stop-loss market orders

--Mismatched trading rules across the various exchanges

--The use of stub quotes

--A mismatch in liquidity that may have been exacerbated after some electronic traders pulled out of the market.

In addition, the report says that regulators are trying to ascertain why exchange-traded funds suffered more broken trades than other securities.

"Much work is needed to determine all of the causes of the market disruption on May 6," the report states.

The report found that a liquidity drain likely played a role in the dramatic and sudden movements in the price of stock index futures on May 6. It says that regulators are examining the decline in prices in futures and index exchange-traded funds and the waves of selling in securities to determine a possible link between the two and "the extent to which activity in one market may have led the others."

CME Group (CME), which lists the E-mini, has contended on numerous occasions that futures trading didn't cause or precipitate the steep declines seen in other markets.

The regulators' report also suggests that the use of stop-loss market orders, which involve standing sell orders at below-market prices, could have drained liquidity from the system. A fast-falling market could trigger a chain reaction of automatic selling. Regulators are investigating whether that happened on May 6, the report says.

Still other things being looked at include a review of stub quotes and short-selling.

Stub quotes generally are far below or above the actual value of a stock and are intended to be place holders that are never actually implemented. Staffers analyzing the broken trades May 6 found that short sales accounted for approximately 70% of executions against stub quotes between 2:45 and 2:50 p.m., and approximately 90% of executions against stub quotes between 2:50 and 2:55 p.m.

This kind of transaction won't be allowed once the SEC's short-sale rule goes into effect, the report noted.

During the market plunge, the report notes that exchange-traded funds experienced more broken trades relative to other kinds of securities. Because ETFs generally track securities market indexes, the major declines in certain securities prices likely caused the ETF prices to drop.

As a result, regulators say in the report that they are looking at a number of issues surrounding ETFs, including the impact of stop-loss market orders from retail investors on the overall ETF market price decline and ETF investment strategies by institutional investors, among other things.

Disparate rules across exchanges and a liquidity drain after some electronic traders exited the market also probably didn't help the situation, the report found.

Lawmakers and analysts say that because NYSE Euronext (NYX) is the only major exchange with a "slow mode" that shuts down computer trading and relies on humans for volatile stocks, the May 6 reaction from other exchanges may be one factor that sent the market into a free fall. The report asks whether the "slow mode" helped or hurt the market slide, noting that rerouting of trades could have caused some NYSE securities to decline further than the broad market decline.

Nonetheless, regulators and exchanges have agreed that the disparate ways of handling falling stocks should be unified.

Another disparate practice involves exchanges "self-help" rules, which frees them from routing orders through another exchange if it repeatedly fails to provide a response to incoming orders within one second.

The report said two exchanges declared "self help" against NYSE in the minutes prior to 2:40 p.m, and the practice could be relevant to the depleted liquidity during the volatile time period.

The SEC on Tuesday released a proposed rule dictating how and when exchanges should take a time out when stocks start to fall. The rule institutes a five-minute cross-market time-out for any stock that experiences a 10% change in price in the preceding five minutes. Regulators are expected later to propose a market-wide rule tied to index levels. It is unclear when regulators and exchanges will implement policies about breaking trades during market volatility.

The CFTC says it is also examining trading by swap dealers on broad-based security derivatives on May 6. As part of a future study, both the SEC and CFTC are planning to pursue a joint study examining the links between correlated assets in the equities, options and futures markets. The CFTC said its economists also are doing an analysis of high-frequency trading.

-By Sarah N. Lynch and Fawn Johnson, Dow Jones Newswires; 202-862-6634; sarah.lynch@dowjones.com

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