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Who to blame for trading debacle? Regulators still are investigating, while NYSE and Nasdaq trade jabs

May 7, 2010 |  2:37 pm

U.S. market regulators on Friday offered no quick explanations for Thursday's stock-trading debacle, which saw some stocks briefly fall from the $40 to $50 range to as little as one cent before snapping back.

In a joint statement, the Securities and Exchange Commission and the Commodity Futures Trading Commission said:

Our market oversight units are reviewing trading and market data from the exchanges, self regulatory organizations and market participants to examine yesterday's unusual trading activity. We are scrutinizing the extent to which disparate trading conventions and rules across various markets may have contributed to the spike in volatility.

We are devoting significant resources and expertise to this effort.

As we determine the cause and contributing factors, we will make our findings and any recommendations public. 

One area of focus is certain to be the New York Stock Exchange's system of slowing trading in fast-moving stocks to keep prices from cascading. Larry Leibowitz, chief operating officer of NYSE Euronext, told Bloomberg Television that the exchange's safeguard procedure meant that some trades immediately shifted to electronic markets which, in his view, didn't have enough potential buyers lined up to keep the stocks from momentarily collapsing.

“If you look at the charts you can see fairly clearly where the trades came in,” Leibowitz told Bloomberg. “It’s that V-shaped drop where it came down and snapped right back up. You had some very high-cap stocks trading down 50% or large percentages in a split-instant because there really was no liquidity in electronic markets.”

But the NYSE's view triggered a shoving match between it and the Nasdaq market, with Nasdaq CEO Bob Greifeld telling CNBC that the NYSE's moves in effect meant it "walked away" from stocks when liquidity was most needed.

-- Tom Petruno


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