U.S. probes computer algorithms after "flash crash"

WASHINGTON | Tue Oct 5, 2010 5:36pm EDT

WASHINGTON (Reuters) - U.S. regulators are investigating trading algorithms after they found that a computer-driven sale helped trigger May's flash crash, Securities and Exchange Commission Chairman Mary Schapiro said on Tuesday.

Although regulators have rolled out a program to help give a company's stock a reprieve if it is in freefall, Schapiro said that more needed to be done.

"We really need to do a deeper dive," Schapiro said at Fortune's Most Powerful Women Summit. "We are looking at whether these algos ought to have some kind of risk management controls."

An SEC and Commodity Futures Trading Commission report found that the single trade, worth $4.1 billion, by a single trader helped trigger the brief crash May 6. The Dow Jones industrial average plunged 700 points in minutes before recovering.

The SEC was already grappling with changes in the equity markets before the flash crash. Now the regulator is under political and public pressure to fix the fragmented markets, dominated by lightning computer trading on dozens of mostly electronic exchanges and alternative venues.

Regulations have not kept up with markets, Schapiro said.

(Reporting by Rachelle Younglai. Editing by Robert MacMillan)



 
 
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