Federal regulators haven't found evidence yet of a so-called "fat finger" that may have triggered last week's rapid stock-market plunge as they sift through "voluminous" records for millions of trades to pinpoint the cause, Securities and Exchange Commission Chairwoman Mary Schapiro said Tuesday in written congressional testimony.
WASHINGTON — Federal regulators haven’t found evidence yet of a so-called “fat finger” that may have triggered last week’s rapid stock-market plunge as they sift through “voluminous” records for millions of trades to pinpoint the cause, Securities and Exchange Commission Chairwoman Mary Schapiro said Tuesday in written congressional testimony.
Regulators are making “substantial progress,” Schapiro said, but pointed out it took several months to identify what caused a major market crash in 1987.
There were 17 million trades in stocks and equities from 2 to 3 p.m. EDT on Thursday, during which the Dow Jones industrial average plunged more than 700 points in 15 minutes.
“At this point, we are unable to point to a single event which could be the sole cause,” Schapiro said to the House capital-markets subcommittee, which called an emergency hearing to analyze the “flash crash.”
The Commodity Futures Trading Commission is working with the SEC on the investigation.
Schapiro said the two agencies have found no fat-finger error, one in which a trader improperly entered an order for billions of shares rather than millions of shares, but said they could not yet “definitely rule that possibility out.”
There also does not appear to have been any unusual trading in Procter & Gamble stock that triggered the plunge, another speculated cause.
In addition, Schapiro said, regulators have found nothing to indicate a hacker or terrorist group caused the problem.
“Ultimately, we may learn that the extraordinary disruption in trading, however it may have been triggered, was the result of a confluence of events which, taken together, exacerbated what already had been a down day and led to an extraordinarily steep price drop and recovery,” Schapiro said.
Schapiro said the investigation is looking at the impact of the different practices of stock exchanges in dealing with major price swings.
Monday, she met with the heads of the New York Stock Exchange, Nasdaq and four other exchanges, and they agreed in principle to strengthen circuit-breaker mechanisms that halt trading during market nose-dives.
The NYSE put circuit breakers in place after the 1987 market crash. But Thursday’s drop of about 9 percent did not trigger the thresholds, which require at least a 10 percent drop in the Dow average, depending on the time of day.
The agreement Monday calls for a lower threshold, tying the mechanism to the Standard & Poor’s 500 index, and halting trading across all markets, Eric Noll, Nasdaq’s executive vice president, told the subcommittee in his written testimony.
A drop of 5 percent would trigger a 15-minute trading halt, a 10 percent drop would halt trading for an hour and a 20 percent drop would stop trading for the rest of the day. Noll did not mention any triggers based on the time of the drops.
Noll and Larry Leibowitz, the NYSE’s chief operating officer, said they supported more coordinated actions across markets to halt trading in the case of rapid declines.
“We believe that it may be prudent to revisit the levels of marketwide circuit breakers and consider tightening their levels, given the rapidity with which significant market movements can occur,” Leibowitz said.
Leibowitz also called for consolidating trading data from all exchanges in a central location so regulators have an easier time reviewing “extraordinary trading events.” He said the SEC was developing such a proposal.
“The markets failed many investors on May 6,” Schapiro said, “and I am committed to finding effective solutions in the very near term.”