A day after a harrowing plunge in the U.S. stock market on Thursday, federal regulators were still unable to answer the one question on every investor's mind: What caused that near panic on Wall Street?
Through the day and into the evening, officials from the Securities and Exchange Commission and other federal agencies hunted for clues amid a tangle of electronic trading records from the nation's increasingly high-tech exchanges.
But, maddeningly, the cause or causes of the market's wild swing remained elusive, leaving what amounts to a $1 trillion question mark hanging over the world's largest, and most celebrated, stock market.
The initial focus of the investigations appeared to centre on the way a growing number of high-speed trading networks interact with each other and venerable exchanges like the New York Stock Exchange. Unbeknown to most investors, these competing systems have fractured the traditional marketplace and have displaced exchanges like the Big Board as the dominant force in stock trading.
The silence from Washington cast a pall over Wall Street, where shaken traders returned to their desks on Friday morning hoping for quick answers. The markets remained on edge, as the uncertainty over what caused Thursday's wild swings added to the worries over the running debt crisis in Greece.
In a joint statement issued after the close of trading, the SEC and the Commodity Futures Trading Commission said they were continuing their review. And the two agencies indicated they were looking particularly closely at how different trading rules on different exchanges, which temporarily halted trading on some markets while activity in the same stocks continued on other markets, might have contributed to the problem.
“We are scrutinising the extent to which disparate trading conventions and rules across various markets may have contributed to the spike in volatility,'' the statement said. A government official who was involved in the investigation said that regulators had moved away from the theory that it was a trading mistake — a so-called fat finger episode — and were examining the links between the futures and cash markets for stocks. In particular, this official said, it appeared that as stock trading was slowed on the NYSE when big price moves started, orders moved automatically to other, electronic exchanges that did not have pricing restrictions.
The pressure in the less-liquid markets was amplified by the computer-driven trades, which led still other traders to pull back. Only when traders began to manually respond to the sharp drop did the market seem to turn around, said the official, who spoke on the condition of anonymity because the investigation was not complete.
The two major regulatory agencies — the SEC and the Commodity Futures Trading Commission — have generated multiple memos detailing what they have found and offering possible causes for the market events. Among the issues discussed in the memos, the official said, were the disparate rules that different stock exchanges have for dealing with large price movements on the same securities and how prices on futures markets and stock exchanges appeared to lead or follow each other's movements down and back up. The lack of a firm answer, more than 24 hours after the market's plunge on Thursday, left some on Wall Street frustrated.