SEC Probes Whether Shock Stock Plunge Exploited Illegally

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SEC Probes Whether Shock Stock Plunge Exploited Illegally

Bloomberg News
Friday, May 7, 2010

May 7 (Bloomberg) — U.S. regulators plan to examine whether securities professionals triggered yesterday’s stock- market plunge or exploited the turmoil to profit illegally, two people with direct knowledge of the matter said.

The Securities and Exchange Commission aims to determine if market participants accidentally or maliciously entered orders that derailed normal trading, the people said, declining to be identified because the inquiry isn’t public. The agency will also examine if controls to prevent the rout from snowballing weren’t in place at exchanges and firms.
SEC officials, who haven’t drawn conclusions, began preparing for inquiries in the hours after a U.S. selloff triggered by Europe’s debt crisis briefly erased more than $1 trillion in market value, beginning around 2:40 p.m. in New York. U.S. stocks tumbled the most in a year as waves of computerized trading exacerbated the rout, sparking a slide in Asian shares.
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The SEC and Commodity Futures Trading Commission said in a joint statement after U.S. markets closed that they will examine “unusual trading” that contributed to the plunge.
“We will make public the findings of our review along with recommendations for appropriate action,” they said.
SEC spokesman John Nester declined to comment on the investigations. The regulator will also look at whether traders tried to take advantage of the chaos, such as by entering orders that drove some stocks to pennies, according to the two people.
Full story here.