Nasdaq's Noll Says Trading in E-Mini Futures Helped Spur May 6 Stock Rout
Heavy trading in Standard & Poor’s 500 Index futures and data communication problems between electronic exchanges helped trigger last week’s market plunge, according to Eric Noll, Nasdaq OMX Group Inc.’s executive vice president for transaction services.
The S&P 500 E-mini, a Chicago Mercantile Exchange-traded contract that tries to predict the benchmark index in June, was “one factor” in the crash, Noll said in prepared congressional testimony today. Noll also cited “data communication issues” between NYSE Arca, the Nasdaq, Bats Global Markets and the Chicago Board Options Exchange during the plunge.
“Nasdaq’s preliminary analysis indicates that unusual trading activity on May 6 was triggered by a confluence of unusual events, including events outside the cash equities markets,” he said.
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. About $700 billion was erased from American equity markets over an eight- minute span after the NYSE took actions to slow trading, according to data compiled by Bloomberg.
In a meeting yesterday, the Securities and Exchange Commission proposed market-wide circuit breakers that would halt trading for 15 minutes whenever the S&P 500 fell 5 percent, Noll said. The proposal would shut trading for one hour when the index lost 10 percent and close markets for the rest of the day when it fell 20 percent.