Schapiro: Robo-trading eyed in 'flash crash'

By Aaron Smith, CNNMoney.com staff writer


NEW YORK (CNNMoney.com) -- Mary Schapiro, chairwoman of the Securities and Exchange Commission, told a Senate panel on Thursday that out-of-control computerized trading could be responsible for the historic market plunge on May 6.

Schapiro told panelists that the 1,000-point stock plunge was "possibly exacerbated by the withdrawal of liquidity by electronic market makers and the use of market orders, including automated stop-loss market orders."

mary_schapiro_100520.03.jpg
SEC Chairwoman Mary Schapiro testified to Senate panelists on ways to prevent another stock plunge.

She emphasized that one of the most important factors in controlling rapid market plunges is to "get that human factor back into" the markets "when the technology has run amok."

Gary Gensler, chairman of the U.S. Commodities Futures Trading Commission, agreed that "we need to examine whether further protections are needed in these fast-paced computer-driven markets."

He added, "We can't stop technology, but I think we need to update our [regulations] to stay abreast of this."

This blame-the-machines analysis inspired Sen. Charles Schumer, D-N.Y., to compare the market plunge to Stanley Kubrick's "2001: A Space Odyssey," a science fiction film "when the machines took over."

But Schapiro avoided making any definitive statements as to what caused the plunge. She said her agency is sifting through 17 million trades from May 6 to determine exactly what led to the extreme volatility.

Schapiro said the "voluminous trading records" under examination include 17 million trades that occurred between 2 p.m. and 3 p.m. on May 6, when the market experienced its biggest intraday point drop in Dow Jones history.

Schapiro's testimony comes just two days after the SEC proposed new rules that would pause trading in certain stocks that experience extreme swings.

"We have to fix the process," she said. 'It is very badly broken."

Under the rules proposed on Tuesday, trading in an individual stock would pause across all U.S. stock markets for a five-minute period in the event that the stock experiences a 10% change in price over the preceding five minutes.

But Schapiro also suggested that additional measures - including "a process that is more transparent" - might be needed to prevent a similar collapse.

Schapiro acknowledged a "possible linkage" between the May 6 volatility and E-mini S&P 500 futures, as some theorized after the plunge. But she dismissed rumors that a fat-fingered trader of E-minis was to blame.

"We have no evidence that these factors were caused by fat finger errors, computer errors or act of [cyber]terrorism," she said. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,563.30 -317.06 -1.88%
Nasdaq 4,369.77 -93.13 -2.09%
S&P 500 1,930.67 -39.40 -2.00%
Treasuries 2.56 0.00 0.08%
Data as of 8:24pm ET
Company Price Change % Change
Bank of America Corp... 15.25 -0.33 -2.12%
Micron Technology In... 30.55 -1.98 -6.09%
Apple Inc 95.60 -2.55 -2.60%
Facebook Inc 72.65 -2.03 -2.71%
Pfizer Inc 28.70 -0.56 -1.91%
Data as of 4:04pm ET

Sections

Eventually a Tesla service team will be able to pick up your car, service it, and return it to you that same day, according to Elon Musk. More

With RadioShack burning through cash, investors and credit rating agencies believe its days are numbered. More

LinkedIn shares surged in after-hours trading Thursday following strong second-quarter earnings, following the likes of Facebook and Twitter. More

Terrell White has had a profit-sharing plan for his employees since 1981, believing that if the staff isn't happy, guests won't be either. More

The Mason family, which has been struggling to pay the $100,000 student loan bill they were left with when their daughter passed away five years ago, is now seeing an outpouring of support. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.