UPDATE: CFTC, SEC Summary On 'Flash Crash' Focuses On 6 Hypotheses
19 Maggio 2010 - 1:18AM
Dow Jones News
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
Grafico Azioni NYSE Group (NYSE:NYX)
Storico
Da Giu 2024 a Lug 2024
Grafico Azioni NYSE Group (NYSE:NYX)
Storico
Da Lug 2023 a Lug 2024