Days later, mystery still shrouds stock market's 'flash crash'
Regulators tell Congress they're moving to erect new stock market 'circuit breakers' to pause trading when individual stocks fall quickly.
Securities and Exchange Commission Chairman Mary Schapiro, director of SEC division of trading and markets Robert Cook, and Commodity Futures Trading Commission Chairman Gary Gensler (l. to r.) testify at a hearing on last week's stock market plunge on Capitol Hill on Tuesday.
Evan Vucci/AP
Five days after the US stock market went haywire, securities regulators said Tuesday they have no solid answers about what went wrong.
But regulators and stock market executives, appearing before a congressional panel, said they'll pursue new "circuit breakers" designed to reduce the risk of a repeat in the kind of unusual volatility that left investors amazed and exasperated last Thursday.
Subscribe Today to the Monitor
The event at issue has been called by some the "flash crash."
US Stock prices had fallen more than 2 percent by early afternoon Thursday, but then the plunge suddenly and inexplicably accelerated. The Dow Jones Industrial Average was soon down more than 8 percent. Then, just as suddenly, share prices surged upward and the market closed with a roughly 3 percent loss for the day.
"I think we would all agree that the market did not [work]," said Lawrence Leibowitz, chief operating officer of NYSE Euronext, which operates the New York Stock Exchange.
In fact, the erratic trading on May 6 is exposing two sides of Wall Street that both are disturbing to some investors. First, exchanges have become so complex that even insiders can't easily explain the kind of mayhem that occurred Thursday. (Even blue chip stocks including Procter and Gamble plunged as much as 30 percent in a few minutes.)
Second, for all the mysteries, Wall Street has a public-relations challenge, as the investigation amplifies concerns about whether computerized trading by sophisticated firms is helping or harming America's capital markets.
"To what extent do you agree with the view that these high-frequency traders are just parasites on the market?" Rep. Brad Sherman (D) of California asked Mary Schapiro, chairman of the Securities and Exchange Commission.
So far, the practice of high-frequency trading, in which firms seek to take advantage of profit opportunities that last for fractions of a second, has not been implicated as a cause of Thursdays mini-crash.
But Ms. Schapiro said the SEC is working to assess the role of these trades, and how they affect the markets.
