by Calculated Risk on 5/11/2010 03:16:00 PM
Tuesday, May 11, 2010
Testimony from SEC Chairman Mary Schapiro before the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises: Severe Market Disruption on May 6, 2010
This is an overview of what happened, what didn't happen (fat finger, unusual trading in Proctor & Gamble) and possible action to be taken (single stock trading curbs). On changes:
[W]e must consider the various types of “time out” mechanisms that can help maintain a fair and orderly market, both for the broad market and for individual stocks.
For example, we must ask whether the general, market-wide circuit breaker provisions that currently are on the books (none of which were triggered on May 6) need to be revised. I note that a vitally important element of the market-wide circuit breakers is that they apply across all stock and options trading venues and all venues for trading equity security-related futures, because markets for all equity security-related products are closely linked.
I believe that we also must consider the various types of time out mechanisms that can be applied to individual stocks. Although the prices of many stocks on May 6 declined in proportion with the broader market decline that occurred in securities and futures index products, the prices of many other individual stocks declined much, much more (before snapping back largely to the prices at which they were trading prior to the precipitous decline). At this point, the root cause of the sudden disappearance of liquidity in many stocks is unclear. ...
In addition to time out mechanisms, we will consider any other steps that potentially could prevent or help minimize the harm that occurred on May 6. These include: (1) exchange-level erroneous order filters; (2) “collars” on the prices at which market orders or aggressively priced limit orders can be executed; (3) limitations on the size of market orders or aggressively priced limit orders; and (4) eliminating the practice of displaying stub quotes that were never intended to be executed.