SEC Examines 'Flash Crash' for Possible Robo-Trader Hanky Panky

Mere days after a computer programmer alerted authorities to potential foul play in the May 6 “flash crash,” the Securities and Exchange Commission is looking into whether high-speed trading tactics were used to manipulate the market, The Wall Street Journal reports.

One technique the SEC is looking at is “quote stuffing,” the practice of rapidly calling in a massive number of buy or sell orders only to cancel the trades shortly thereafter. Another is a trick where a high volume of orders, differing in price by only fractions of a penny and at considerable distance from the current price, floods the market. If that tactic, called “sub-penny pricing,” was used to manipulate stock prices, then it’s illegal, a source told the Journal.

Eric Husader, founder of stock data service Nanex and the guy who alerted the government to the unusual market activity, told the Journal that quote stuffing happens every day, and that the technique was at least in part responsible for the May 6 crash.

The SEC currently has its sites set on around six Wall Street firms on sub-penny trading. Whether a formal investigation is in the offing is as of yet uncertain.

During the crash, the Dow crazily dropped 700 points in minutes, only to recover that loss soon thereafter. Some companies saw their prices approach zero.

SEC Examines 'Flash Crash' for Possible Robo-Trader Hanky Panky