SEC Meeting About May 6 Stocks Plunge Yields No Clues
Chairman of the U.S. Securities Exchange Commission Mary Schapiro testifies during a hearing in Washington. Photographer: Jay Mallin/Bloomberg
May 10 (Bloomberg) -- Jeff Davis, chief investment officer of Lee Munder Capital Group, talks with Bloomberg's Betty Liu about last week's selloff in U.S. equities. The Dow Jones Industrial Average fell more than 9 percent in minutes on May 6. Almost 1.3 billion shares traded in a 10-minute span starting at 2:40 p.m., six times the average, sending prices lower on platforms from New York to Kansas City. Losses were later pared and the Dow industrials closed down 3.2 percent. (Source: Bloomberg)
May 10 (Bloomberg) -- Michael Durbin, a financial technology consulatant and author of forthcoming book "All About High-Frequency Trading," talks with Bloomberg's Erik Schatzker about last week's selloff in U.S. equities. The Dow Jones Industrial Average fell more than 9 percent in minutes on May 6. Almost 1.3 billion shares traded in a 10-minute span starting at 2:40 p.m., six times the average, sending prices lower on platforms from New York to Kansas City. (Source: Bloomberg)
Larry Leibowitz, head of U.S. Markets for NYSE Euronext
Ramin Talaie/Bloomberg
Head of U.S. Markets for NYSE Euronext Larry Leibowitz listens during a discussion in New York.
Head of U.S. Markets for NYSE Euronext Larry Leibowitz listens during a discussion in New York. Photographer: Ramin Talaie/Bloomberg
Heads of the biggest U.S. trading venues could provide no clear reason for last week’s stock- market selloff in meetings today with the Securities and Exchange Commission, two people familiar with the matter said.
The chief executive officers of NYSE Euronext, Nasdaq OMX Group Inc., Bats Global Markets Inc., Direct Edge Holdings LLC, International Securities Exchange Holdings Inc. and CBOE Holdings Inc. saw no evidence that a mistaken order caused the plunge, according to the people, who asked not to be named because the discussions were private.
The Dow Jones Industrial Average fell as much as 9.2 percent on May 6, its biggest tumble since the crash of 1987, before paring losses and closing down 3.2 percent. Almost $700 billion was erased from American equity markets over one eight- minute span, according to data compiled by Bloomberg.
The CEOs earlier took a step toward aligning trading rules to prevent conflicting systems from worsening stock-market plunges. The group meeting with Chairman Mary Schapiro agreed on a framework for “strengthening circuit breakers and handling erroneous trades,” according to a commission statement.
Regulators and exchanges face pressure from lawmakers and President Barack Obama’s administration to offer proposals aimed at preventing future crashes even though the SEC hasn’t determined what caused last week’s free-fall. Schapiro and exchange officials gave Treasury Secretary Timothy Geithner an update on progress they’ve made at a briefing today.
Circuit Breakers
At the two-hour meeting at the SEC, Schapiro and representatives from the NYSE, Nasdaq and other trading venues discussed the need to revise market-wide circuit breakers and implement halts for individual stocks, the people said.
The New York Stock Exchange currently has circuit breakers that pause trading when the entire market falls 10 percent before 2 p.m. New York time. The NYSE also uses so-called liquidity replenishment points, which slow trading in companies that experience sudden price moves.
The triggering of liquidity replenishment points on May 6 encouraged orders to flow to alternative platforms with few if any buyers, worsening the decline, NYSE Euronext Chief Operating Officer Larry Leibowitz said last week.
Schapiro and exchange heads discussed specific percentage figures that would trigger new circuit breakers, said the people. Plans will be refined over the next day, according to the SEC statement.
Swamped Demand
The May 6 plunge swamped demand, pushing share prices of companies from Accenture Plc to Exelon Corp. to pennies. Nasdaq announced it would cancel trades on all exchanges that were more than 60 percent above or below prices at 2:40 p.m. New York time, just as equities plummeted.
Proposing regulations to handle such erroneous trades was a focus of Schapiro’s meeting with executives, with discussions focusing on how to best define what constitutes a false trade, said the people. The exchanges agreed that new rules are needed.
Schapiro, Commodity Futures Trading Commission Chairman Gary Gensler and executives from the NYSE, Nasdaq and CME Group Inc. will testify on the market rout before a House Financial Services subcommittee tomorrow.
To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.
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