SEC expects early findings on dramatic, 1,000 point market drop next week

Officials
with the Securities and Exchange Commission and Commodity Futures Trading
Commission said they are still trying to determine what caused markets to fall
on Thursday. The Dow Jones Industrial average lost nearly 1,000 points before
rebounding by hundreds of points.

It
all took place within minutes, and explanations have run from a “fat finger”
that hit the wrong button to other technologic issues.

{mosads}SEC
Chairwoman Mary Schapiro said preliminary findings would be presented next week to a
newly formed joint advisory committee between regulators who are investigating
the 1,000-point drop in stocks on May 6. The Dow Jones dropped more than 9
percent but that wasn’t enough of a change to set off the market’s built-in
circuit breakers. 

So
far, there’s no evidence that the huge drop was caused by a finger error,
computer hackers, terrorism or specific securities trading, Schapiro told the
House Financial Services Subcommittee on Capital Markets, Insurance and
Government Sponsored Enterprises. 

Regulators
are looking closely at the role of some professional liquidity providers that
temporarily didn’t participate on the market on the buy side as many stock
prices declined sharply. 

Schapiro
said investigators believed they would eventually pinpoint the cause, but that
it would take time.

The investigation
will probably point to several factors behind the precipitous drop. Seventeen
million trades in listed equities took place between 2 p.m. and 3 p.m., when
markets fell dramatically. Conclusions from the probe could lead to changes in
market regulation, Schapiro said. 

It’s highly probable that a “confluence of events
exacerbated an already down day,” that led to the steep drop, she said. 

The day started out
turbulently with fears heightened about Greek debt and a European financial
crisis, elections in the United Kingdom and a U.S. jobs report expected the
next morning, all of which could’ve open the door to the drop, CFTC
Chairman Gary Gensler said. Volatility pricing was up 60 percent and there were
signals in the futures markets that caused risk premiums to widen, he said. 

With all of those signals combined with additional
external pressures on the markets, “fear took
over,” Gensler said. 

Regulators were in touch with the heads of the exchanges
from the end of trading Thursday through the weekend, and then met in
Washington on Monday.

“The sudden evaporation of meaningful prices for many major
exchange-listed stocks in the middle of a trading day is unacceptable and
clearly contrary to the vital policy objective of maintaining fair and orderly
financial markets,” Schapiro said. “This event directly impacted the many who
trade in the interval and undermined confidence in the integrity of the
financial markets.”