Federal investigators will submit preliminary findings into a sudden plunge in financial markets, and exchanges will propose new trading rules aimed at preventing another such crash, the nation's top securities regulator said.
Securities and Exchange Commission Chairman Mary Schapiro told a gathering of financial analysts Tuesday that her agency's staff and counterparts with the Commodity Futures Trading Commission will present findings to an advisory panel studying what she calls the "flash crash" the occurred on May 6. Schapiro didn't offer details on the findings.
Schapiro appeared from Washington by video link rather than traveling to speak in Boston to the Chartered Financial Analysts Institute's convention, citing the demands of an investigation she said is "keeping me up at all hours of the morning."
She said her agency is "looking at a number of issues we think can be remediated quickly even before we understand necessarily what the exact cause of the crash was."
The joint SEC-CFTC advisory panel will hold its first meeting next Monday. The 10-member committee includes Joseph Stiglitz, a Nobel Prize-winning economist; Brooksley Born, a former CFTC chair; Jack Brennan, former CEO of mutual fund company Vanguard; and Richard Ketchum, CEO of the Financial Industry Regulatory Authority, the brokerage industry's self-policing organization. Schapiro and CFTC Chairman Gary Gensler are the co-chairs of the panel.
In a question-and-answer session with the audience, Schapiro didn't discuss details of plans by exchanges to issue rules that are designed to prevent a recurrence. She did say the rules would allow for pauses in trading of certain securities after sudden unexplained drops in their prices.
The May 6 plunge briefly wiped out more than $1 trillion in the market value of stocks, as the Dow Jones industrials posted a nearly 1,000-point drop in afternoon trading. The Dow later recovered somewhat to finish the day down 342 points.
But the plunge stunned Wall Street and Washington, and prompted calls for changes in securities market rules and procedures. Most of the 50 or so U.S. exchanges regulate themselves and design their own tools for slowing or halting trading.
During the plunge, the New York Stock Exchange slowed trading according to its rules, but the orders that couldn't be executed migrated in a torrent to electronic exchanges, industry officials said.
Six major exchanges agreed in principle May 10 to a uniform system of circuit breakers, which could slow or halt trading during sharp market swings. They submitted recommendations to the SEC last week. The exchanges also made suggestions to the SEC for an improved system for handling erroneous trades. Thousands of trades made during the plunge were later canceled because they were deemed erroneous by exchange officials.
The circuit breakers are designed to halt trading momentarily during a freefall to stop selling from feeding on itself. They kick in when stocks fall a certain amount in a single day. They aren't there to prevent people from losing money. The idea is to force traders to take a breather, stop selling and refocus on economic and corporate news instead of an alarming market plunge.
Schapiro said Tuesday that her agency still has "many millions" of trades to review in its investigation, and "hundreds of millions of data points to analyze."
Schapiro's speech focused on the U.S. role in developing global financial accounting standards and reducing discrepancies from country to country. She tried to dispel the notion that U.S. regulators put a low priority on developing greater corporate accounting consistency.
She called the effort a "detailed and challenging task" that her agency is "fully committed" to seeing through nearly a decade after the accounting scandal at Enron Corp.
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