Flash crash cause? Keep guessing
Commentary: SEC, CFTC are at a loss to explain May 6 plunge
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Regulators on the flash crash: it's complicated
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By MarketWatch
NEW YORK (MarketWatch) -- If market regulators had a Facebook page to describe their relationship with the investors, their status would be "it's complicated."
The preliminary report from the Securities and Exchange Commission and the Commodities Futures Trading Commission issued late Tuesday suggests regulators are only slightly closer to understanding the "flash crash" events of May 6 than they were 12 days ago.
In other words, their guess is as good as ours. Read SEC/CFTC preliminary report on flash crash.
The 151-page report concludes: "Staff analysis of market performance measures is consistent with the conclusion that a very temporary, but serious liquidity shortage occurred across the securities and futures markets."
You don't say.
The SEC and CFTC say they will continue to investigate the cause, but at this point, if they haven't come up with at least a general theory about what happened, you can bet that a final explanation will lack certainty.
For investors, the inability of regulators to retrace the events of May 6 and come up with a finding is more than troubling. The commissions studying the crash have the best data available in the market. Along with the New York Stock Exchange and Nasdaq Stock Market, they have the best forensic tools at examining trades, volume and liquidity.
Even with the best data at their disposal, it clearly isn't enough. The markets have changed too fast. They are more complicated and nuanced than regulators are able to understand.
That's why the SEC has come up with a plan that hinges on circuit breakers to prevent another 1,000 point drop in the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (DJIA 10,511, -114.88, -1.08%) or massive losses in single stocks. It's the best tool they have. And it provides the only avenue exchanges have to halting a slide: pulling the plug. Circuit breakers will also give markets and regulators time to determine whether a sell-off is sentiment driven, technology driven or malicious.
It does raise a question, however. If they can't figure out what happened after 12 days, how will they understand a massive plunge in just 15 minutes? |
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