Regulators Examine Market Volatility
Tuesday, May 11, 2010

Regulatory authorities in the United States are looking back at last Thursday's roller-coaster trading on the US stock markets in order to try and get to the bottom of what happened.

“We are continuing to review the unusual trading activity that took place briefly yesterday afternoon to pinpoint its cause and contributing factors," The Securities and Exchange Commission and the Commodity Futures Trading Commission announced in a joint statement last Friday. "We have been in regular contact with other financial regulators and our respective exchanges. We also have been in touch with our foreign counterparts around the world."

Nobody is quite sure what caused the Dow Jones Industrial Average to plummet by 1,000 points before settling just under 350 points down in the space of half-an-hour on Thursday afternoon. One suggestion is that a 'fat fingered' trader entered the wrong numbers into his computer terminal, with his erroneous sell order triggering a widespread sell-off. This idea has been dismissed by many, however, as safeguards written into computer systems would prevent such a mistake.

The fact that market volatility continued in Friday morning's trading, however, is more suggestive that the markets were jittery over European governments' debt and their ability to absorb the cost of the Greek bail-out.

“Our market oversight units are reviewing trading and market data from the exchanges, self regulatory organizations and market participants to examine yesterday's unusual trading activity," the regulators' statement continued. "We are scrutinizing the extent to which disparate trading conventions and rules across various markets may have contributed to the spike in volatility."

The two bodies said that they are devoting "significant resources and expertise to this effort" and intend to make public their findings and any recommendations.

“Thursday’s unusual trading activity included extreme volatility for a number of individual securities. This is inconsistent with the effective functioning of our capital markets and we will make whatever structural or other changes are needed."

Market clearance and settlement processes "functioned well and without incident," the joint statement revealed.