The SEC ‘Flash Crash’ Report Will Comfort Investors

lightning 0 The SEC Flash Crash Report Will Comfort InvestorsSecurities and Exchange Commission chief Mary Schapiro says that her agency’s report on the May 6 Flash Crash will show that regulators have a “very deep understanding” of how the exchanges work, Reuters reports.

Schapiro said she expects the SEC to release the report in the next few days. Public confidence in the safety and fairness of U.S. stock exchanges appears to have diminished. The amount of money kept in mutual fund accounts has declined for every week since the crash, signalling that investors are skittish about investing in stocks when the market can tumble hundreds of points in minutes.

The SEC’s view as of last week was that the crash was probably not caused by market manipulation, according to the chief investigator researching the flash crash. Meanwhile, electronic trading firm Nanex, which has played a key role in supplying flash crash-related information, said yesterday that it could not determine whether certain high-speed trading activity that preceded the crash was manipulation.

Schapiro’s current conviction that the SEC has a keen understanding of the mechanisms behind the crash contrasts sharply with the attitude she expressed in the days following the crash. At that time, she said, “The technologies used for market oversight and surveillance have not kept pace with the technology and trading patterns of the rapidly evolving and expanding securities markets.”

The May 6 Flash Crash brought the Dow Jones Industrial Average down nearly 1,000 points in a matter of minutes. Since May 6, similarly odd price activity has taken place in shares of Progress Energy, Nucor, Seagate Technologies and Intel. The SEC has implemented tighter “circuit breaker” restrictions that stop trading in shares of a stock if the price experiences dramatic moves upward or downward.

mtaylor@observer.com

Twitter: @mbrookstaylor