The U.S. Securities and Exchange Commission is probing how the splintering of the U.S. stock exchange business into dozens of markets may have contributed to Thursday’s dizzying plunge in shares, a review that will have major implications for Canada's changing trading landscape.
The U.S. has as many as 50 separate venues for trading, and many analysts say that the way orders bounce back and forth between different markets with different rules may have exacerbated the selling. For example, the New York Stock Exchange briefly suspended trading in some stocks, while they continued to trade on other markets.
“We are scrutinizing the extent to which disparate trading conventions and rules across various markets may have contributed to the spike in volatility,” the SEC said, adding that the volatility “is inconsistent with the effective functioning of our capital markets and we will make whatever structural or other changes are needed.”
What the SEC finds will be closely watched in Canada, which is steadily moving toward a U.S.-style trading environment with multiple markets.
For all intents and purposes, the U.S. stock market ceased to function properly for about 10 minutes in the late afternoon Thursday, as buyers vanished for reasons that aren’t yet clear. Some giant companies’ stock prices fell to almost nothing, forcing Nasdaq and the New York Stock Exchange to cancel thousands of trades in hundreds of stocks because markets were so out of whack.
Friday, U.S. regulators and exchanges were still searching for the trigger. Experts said the picture should become clearer soon, given the mounting political pressure for answers. U.S. policy makers announced that they would hold a congressional hearing on Tuesday to probe what went wrong.
Regulators need to take a close look at the splintering of the securities industry and how exactly orders are diverted from one market to another, said Michael Gorham, former director of market oversight at the U.S. Commodity Futures Trading Commission.
