Washington: US regulators are racing to enact new rules to prevent a repeat of last week’s stock market free-fall as they face calls for change when Congress discusses the issue on Tuesday.
Days after markets were badly shaken by a near 1000-point drop on the Dow Jones Industrial Average, the Securities and Exchange Commission said additional “circuit breakers” were now being considered.
Despite markets recovering much of the loss, the sell-off sent a wave of panic across global stock markets and left President Barack Obama vowing an investigation into the “unusual market activity.”
The heads of a host of exchanges, including the New York Stock Exchange (NYSE) and the tech-heavy Nasdaq met with the head of the SEC and Treasury Secretary Timothy Geithner on Monday to hammer out new rules.
“The heads of several exchanges briefed Secretary Geithner on their preliminary findings and potential recommendations to address the problem highlighted by last Thursday’s unusual market activity,” said Treasury spokesman Andrew Williams.
“Secretary Geithner reinforced the need for a coordinated and timely response to help ensure the proper functioning of our markets.”
Although markets had been roiled by fears that Greece’s debt crisis would spread to other eurozone countries and derail the global economic recovery, other factors are thought to have played a role.
The speed of Thursday’s slide suggested that a mistaken trade or computer error could be involved, observers said.
It took just minutes to notch losses worth billions of dollars.
SEC chairwoman Mary Schapiro described meetings with the leaders of six exchanges, as “constructive.”
“As a first step, the parties agreed on a structural framework, to be refined over the next day, for strengthening circuit breakers and handling erroneous trades.”
The NYSE had slowed down trade on Thursday in an effort to halt the decline, but it proved futile as traders simply moved onto electronic platforms without so-called “speed bumps” and continued the sell-off.
In a rare move, the NYSE and the Nasdaq were canceled trades executed between 2:40 and 3:00 pm that were off more than 60 percent from the price at the start of that period.
Meanwhile lawmakers are expected to call on stock exchange chiefs to explain the drop when they appear before a House of Representatives financial services panel on Tuesday.
Schapiro is also expected to be among those who appear before a House of Representatives Financial Services subcommittee to discuss the stunning dive.
Democratic senator Chuck Schumer of New York has written to the top US equities, options and futures exchanges urging them to adopt uniform circuit-breakers to slow vast, speedy sell-offs like last week’s plunge.
“Coordination and consistent safeguards between trading venues — and across markets — is essential,” the lawmaker said.
Schumer’s letter went to the top executives of the NYSE, Nasdaq, Direct Edge, BATS Exchange, International Securities Exchange, Chicago Mercantile Exchange and Chicago Board Options Exchange, as well as Schapiro.
The senator also called for regulators to develop a new market-surveillance system to track volatile trading.