Wed, Apr 16, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

SEC, veteran traders agree on market reform over May 6 ‘flash crash’

Thursday, June 03, 2010
Opalesque Industry Update – Expert market traders and the Securities and Exchange Commission (SEC) may clash on the cause of the mysterious “flash crash,” last month but they agree that a structural reform should be forthcoming. The consensus was outcome of a roundtable event sponsored by the SEC, and held on Wednesday as regulators still try to discover the cause of the 700 point plunge in the markets on the afternoon of May 6.

The roundtable was attended by representatives from Gus Sauter (Chief Investment Officer, Vanguard Group, Dan Mathisson (Managing Director, Credit Suisse Group AG), as well as experts from universities, exchanges, and big market makers and high-frequency traders such as RGM Advisors and Getco LLC.

Richard Rosenblatt, a veteran trader since the 1970s, said the Dow Jones plunge of a month ago, an event that he says could have been avoided, shook market confidence. Rosenblatt blamed high speed trading as the culprit for the extreme market volatility that day, reported Reuters.

But Jeffrey Wecker, president of Lime Brokerage disagreed and said that high-frequency traders have been subject to "misplaced vilification." Echoing this was Stephen Schuler, CEO of Getco LLC, who said that algorithmic trading had little to no effect on the long-term price of publicly traded companies.

Adam Sussman, director of research at consultancy TABB Group said the May 6 crash was not caused by just one event or trade or group, but by a combination of rules and the industry’s response, (Source). Sussman suggested that the so-called flash crash should be used by regulators to dig deeper to identify the problem and resolve it with the introduction of new regulation, focusing especially on high frequency trading.

High-frequency traders use super fast computers and quick algorithms to capitalize on tiny market imbalances. The strategy has gained popularity in recent years and an estimated 60% of all U.S. stock trading volume are done through high frequency trading.

SEC chairman Mary L. Shapiro said regulators are “making progress” in their review of the May 6 market turmoil, but added her agency still has not pinpointed its cause.

Several proposals to control future volatility have been placed under consideration, including a single-stock circuit-breaker mechanism that would stop trading for five minutes in all shares of companies in the Standard & Poor's 500 index should any single stock price change at least 10 percent during a five-minute period. ...Other proposed rule changes are forcing high-frequency traders with commitments to trade and a crackdown on anonymous trading venues known as dark pools.

Last week, Jill Sommers, a commissioner with the Commodity Futures Trading Commission admitted that market regulators might never determine the cause of last month’s market crash as there is still no evidence of trading errors or system malfunctions.
-Komfie Manalo

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Banner
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing
  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. CTAs could face new challenges in a rising rates environment[more]

    Bailey McCann, Opalesque New York: CTAs have taken a beating performance wise lately, and asset flows reports show that investors aren't sticking around to see how the movie ends. Now, a new white paper from Roy Niederhoffer and Coen Weddepohl notes that as interest rates start to tick back u

  2. Investing – Big hedge funds bought Puerto Rico's junk bonds, Fidelity explores new trading venue amid flash trade concerns, Crisis-era Greek bonds reward early buyers with big effective returns, Cargill unit discloses stake in Freddie preferred[more]

    Big hedge funds bought Puerto Rico's junk bonds From Reuters.com: Several large hedge funds doubled down on Puerto Rico in last month's giant bond sale despite the U.S. territory's financial struggles, the Wall Street Journal reported, citing confidential documents reviewed by the newspa

  3. Commodities – Popular value fund manager David Iben bets on Russia, gold,[more]

    From Reuters.com: With large bets on Russia and North American gold miners, one of the best performing stock pickers in the wake of the 2008 financial crisis is back with a new fund that reflects his deep aversion to following the crowd. In the Kopernik Global All-Cap Fund, David Iben is follo

  4. Opalesque Exclusive: Pensions, endowments, family offices reconsider life settlement investments[more]

    Bailey McCann, Opalesque New York: Hedge funds were once the largest investors in the life settlement industry, now the industry is seeing more interest from pensions, endowments and family offices directly. Life settlements have always been considered a niche part of the investing landscape, an

  5. SEC allows investment funds to use social media[more]

    Bailey McCann, Opalesque New York: The Securities and Exchange Commission (SEC) has released new guidance letting investment funds and advisors use social media to promote client reviews. The guidance seeks to assist investment managers in developing compliance policies and procedures reasonably