US President Barack Obama said on Friday that regulators would look for ways to prevent a repeat of Thursday’s mysterious stock market meltdown, adding to expectations the US government will make new regulations to curb runaway computer trading.
More than a day after a nearly 1,000-point drop in the Dow, the government had not publicly pinpointed the reasons.
Growing concern about the Greek debt crisis, exacerbated by a spike in the yen, may have caused computerized trading programs to dump US stocks. Initial theories had focused on an individual trader erroneously entering an order, known as “fat finger” on Wall Street.
“The regulatory authorities are evaluating this closely with a concern for protecting investors and preventing this from happening again,” said Obama, who called the sell-off “unusual market activity” when he spoke to reporters.
More than 50 people were working on the investigation into the night on Friday — some who have slept for only two hours since Thursday’s plunge — but regulators still do not know whether it started outside or within equity markets, a government source close to the probe said.
Politico, a news organization that covers US politics and government, said regulators were eyeing a series of high-volume trades in S&P futures in Chicago as the trigger.
Whatever the cause, the biggest-ever intraday point drop in the Dow stoked outrage among investors and politicians already up in arms over Wall Street’s role in the global recession.
“We should expect the regulators to use every tool available to them to lower the speed limit on financial markets, and especially on banks,” said Mohamed El-Erian, chief executive of Pacific Investment Management Co. “You will see regulation, taxation and enforcement all being used.”
Democratic senators Ted Kaufman and Mark Warner called for an amendment to the financial reform bill, asking US regulators to report on the causes of Thursday’s market plunge and whether circuit breakers are needed for computer-driven trading.
“A temporary US$1 trillion drop in market value is an unacceptable consequence of a software glitch,” Kaufman and Warner said in a letter to Christopher Dodd, chairman of the Senate Banking Committee.
EU market supervisors agreed on Friday to intensify monitoring because of wild stock and derivative swings.
The Dow industrials finished down 3.2 percent on Thursday. The index lost 1.3 percent on Friday, but there was no sign of the kind of selling that wracked the market on Thursday.
While the reasons behind the market swoon remained unclear, one senior portfolio manager at a large corporate pension plan speculated the move could have been set off by an algorithm responding to a spike in the yen, first against the euro, then against the dollar.
That in turn may have touched off computer orders to dump large amounts of stock more or less instantaneously, the manager said.
“That set off a nuclear process of one order banging into the next and exploding,” he said. “At the end of the day, the fault lies with poor programming and lack of intelligent human override.”
The Securities and Exchange Commission and the Commodities Futures Trading Commission said they were examining the reasons behind the sell-off, and “scrutinizing the extent to which disparate trading conventions and rules across various markets may have contributed to the spike in volatility.”
There are two issues for regulators and exchanges. One is to ensure that the same kind of rapid sell-off does not happen again; the other is to determine if someone in the market was trying to take advantage of the situation.
NASDAQ OMX Group will push for a marketwide circuit breaker based on individual stocks, chief executive Robert Greifeld said. Duncan Niederauer, chief executive of NYSE parent NYSE Euronext, touted his exchange’s use of a lever that slows down floor trading.
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