Securities and Exchange Commission Chairman Mary Schapiro's statement to Congress on market 'disruption.'
Highlights:
“Our preliminary analysis shows that this precipitous decline in stocks (and the subsequent recovery) followed very closely the drop (and recovery) in the value of the E-mini S&P 500 future (which tracks the normal relationship between futures and stock prices for the broader market).”
“We are continuing to examine information about bond and international ETFs against the broader market of ETFs. Of the domestic equity ETFs affected, however, the impact appeared not to discriminate among asset categories or investment objectives.”
“A significant number of broken trades were in the shares of ETFs for reasons that are still unclear.”
“We have obtained extensive data from the exchanges and other market participants and are in the process of analyzing that data to ascertain the triggers and impacts of trading that day.”
“The Commission also has been in close contact with our foreign counterparts. Some of our counterparts have circuit breaker-like market intervention mechanisms linked to our own and others have market intervention mechanisms that halt trading on specific securities affected by unexpected market volatility.”
“At this point, our investigation is in the early stages, though we recognize the pressing need to move rapidly. The various regulatory authorities are making substantial progress in analyzing last Thursday’s trading and sifting through the voluminous trading records involved (including more than 17 million trades in listed equities between 2 p.m. and 3 p.m. alone). We hope to be able to provide investors and the public with more information soon on the events that may have contributed to this volatility, but we should recognize that it will take time to fully analyze the data.”
“Although developments in the markets and in technology may help speed access to market data, they also greatly complicate our efforts to analyze the complex web of trading arrangements and market dynamics that have developed since 1987.”
“ “Fat Finger”: There have been reports in the press about a “fat-finger” error where, it is hypothesized, an order of billions of shares was entered, rather than an intended order of millions of shares. While we cannot yet definitely rule that possibility out, neither our review nor reviews by the relevant exchanges and market participants have uncovered such an error.”
“Proctor & Gamble: In addition, there have been reports that one or more exceptionally large orders in the stock of Proctor & Gamble may have preceded and helped to trigger the broader market decline. There does not appear to have been any prior unusual trading in Proctor & Gamble that would have triggered the broader market decline.”
“E-Mini S&P 500 Future: Another focus has been the role of the E-mini S&P 500 future in leading the market decline and recovery. To a great extent, this concern merely reflects a basic fact of market dynamics – much of the price discovery for the broader stock market occurs in the futures markets.”
“Hacker or Terrorist Activity: At this time, we have not identified any information consistent with computer hacker or terrorist activity.”
“ … the events of last week are unacceptable. The SEC is engaging in a comprehensive review and will take necessary steps to implement additional safeguards to prevent the type of unusual trading activity that occurred briefly last week. The Commission is considering a number of proposals that will address key issues raised on May 6 and we will move expeditiously to address all issues we determine caused or contributed to those events.”
SEC Chair Schapiro Statement to Congress on Market Disruption
