“The Securities and Exchange Commission is examining the behavior of market professionals during the puzzling May 6 stock plunge to determine whether they met their legal obligations to investors, SEC Chairman Mary Schapiro said Thursday,” Fawn Johnson reports for The Wall Street Journal. “‘If we identify any activity that violates the securities laws, we will take appropriate action,’ Ms. Schapiro said in written testimony prepared for the Senate Banking Committee’s Subcommittee on Securities, Insurance and Investment.”
MacDailyNews Take: Luckily for anyone who violated securities laws, the SEC seems incapable of identifying its collective ass from its elbow, even when it’s shown to them repeatedly.
Johnson continues, “The SEC also is asking the major trading exchanges for a unified plan for breaking trades during volatile market periods within two weeks, Ms. Schapiro said during the hearing. Thursday’s congressional hearing is the second in as many weeks on the market ‘flash crash,’ when the Dow Jones Industrial Average sank nearly 1,000 points before staging a partial recovery. Policy makers and market analysts are clamoring for information about what happened and how to stop a similar event from occurring again.”
“The SEC has received numerous complaints from investors who had ‘stop-loss’ orders in place to protect against falling markets, she said,” Johnson reports. “Those accounts were liquidated as stocks were plummeting on May 6, ‘only to have stock prices close significantly above their sale prices.'”
Johnson reports, “To keep such a plunge from occurring again, the SEC and the major trading exchanges will implement a cross-market ‘circuit breaker’ in June that will require a five-minute time-out for any stock that sees a 10% change in price in the preceding five minutes. Other fixes, such as a marketwide pause and unified trade-cancellation policy, also are in the works.”
“Preliminary findings from regulators about the flash crash indicate that it was caused by a ‘severe temporary liquidity failure’ and not any economic factor indicating that equities ‘truly could drop and recover such a large amount in just a few minutes,’ she said,” Johnson reports. “Ms. Schapiro’s testimony at the hearing echoed her comments given a week earlier before a House panel when she said regulators found no evidence that a ‘fat finger’ typing error or hacker or terrorist activity caused the flash crash.”
Johnson reports, “NYSE Chief Operating Officer Larry Leibowitz said regulators shouldn’t ‘point blame’ at professional traders or certain liquidity providers and should focus instead on the role of market makers and alternate trading platforms such as ‘dark pools.'”
Much more in the full article here.
[Thanks to MacDailyNews Reader “iWill” for the heads up.]