Almost 5 months after the Flash Crash,
the Securities and Exchange Commission
is ready to release a 100 page multiple choice formatted report
on the causes of the flash crash.
By Jessica Holzer, Jacob Bunge and Sarah Lynch
WASHINGTON—Regulators are close to releasing a report on the causes of the May 6 "flash crash."
The Securities and Exchange Commission staff is expected to circulate final copies of the report to all five SEC commissioners soon, a person familiar with the matter said, making it possible the report could be released by Friday.
Two of the agency's five commissioners, Elisse Walter and Kathleen Casey, are out of the country, a possible complication in securing release of the report. A majority of the five SEC commissioners must sign off on its release. Sources familiar with the issue said the long-awaited "flash crash" report, expected to run about 100 pages, isn't likely to point to a smoking gun or any novel explanation for the dive in the U.S. stock market that day.
Rather, it will present a detailed account of the events that day, showing that a confluence of factors led to the plunge that wiped out roughly $862 billion in equity-market value in less than 20 minutes.
Markets that day were already down heavily on fears around European debt problems when a number of large trades in derivatives markets fueled heavy selling in stocks. Some exchange systems became bogged down with the flow of market data, which prompted several major trading firms to cease trading activity, reducing the pool of available liquidity.
The report was prepared jointly by staff of the SEC and the Commodity Futures Trading Commission, which have in recent days been in discussions over precise wording in the text, fueling speculation the report's release would slip into next week.
All five SEC commissioners are expected to authorize the report's release.
The document aims to give a definitive account of the events that day, including second-by-second descriptions of parts of the day when rattled traders fled the markets, people familiar with the report said.
A draft of the report circulated to SEC commissioners over the weekend didn't proscribe any policy changes, nor did it attempt to nudge regulators to pursue certain reforms, according to a person who has seen it.
While no major revelations are expected in the report, market participants and regulators have voiced hope that a thorough accounting of the multiple factors playing into the market swings of May 6 will help boost investors' confidence in the market.
Stock trading activity in the third quarter of 2010 has dropped about 27% from second-quarter levels, according to figures from Barclays Capital, while trading in options and futures is off 21% and 15%, respectively.
Securities and Exchange Commission Crack Investigative Research Team