May 7, 2010 | 5:05 PM ET
Senior Obama Official: No "Fat Finger" Behind Thursday Wall Street Chaos
UPDATE: As this post predicted, the Securities and Exchange Commission and the Commodity Futures Trading Commission released the following statement of Thursday's Wall Street roller-coaster.
"We are continuing to review the unusual trading activity that took place briefly yesterday afternoon to pinpoint its cause and contributing factors.
Since yesterday, we have been in regular contact with other financial regulators and our respective exchanges. We also have been in touch with our foreign counterparts around the world.
Our market oversight units are reviewing trading and market data from the exchanges, self regulatory organizations and market participants to examine yesterday's unusual trading activity. We are scrutinizing the extent to which disparate trading conventions and rules across various markets may have contributed to the spike in volatility.
We are devoting significant resources and expertise to this effort.
As we determine the cause and contributing factors, we will make our findings and any recommendations public.
Thursday’s unusual trading activity included extreme volatility for a number of individual securities. This is inconsistent with the effective functioning of our capital markets and we will make whatever structural or other changes are needed.
Market clearance and settlement processes functioned well and without incident.”
ORIGINAL POST BEGINS HERE:
A senior Obama administration official briefed early Friday by regulators said the so-called "fat finger" phenomenon did not trigger the massive sell-off that buzz-sawed 1,000 points from the Dow on Thursday - the largest intra-day point loss on record - before a partial recovery recouped some of those loses.
"Fat finger" refers to a theory - never authenticated - that a trader on Thursday mistyped a sell order, selling far more of a stock than the trader intended. Under the theory, that-larger-than-intended sale order sent a false signal through the market and set in motion a domino-effect of other stock sales. According to two senior officials, there is "no evidence" to support the "fat finger" phenomenon.
The official, who spoke on the condition of anonymity, said regulators reported the more likely cause of the wild market gyrations was programmed sales of stock across exchanges, triggered by a slow down or sale in one exchange and computer-programmed "discrepancy" transactions.
This is the early analysis from Mary Shapiro, head of the Securities and Exchange Commission and Gary Gensler, head of the U.S. Commodity Futures Trading Commission. Both reported to a wide array of top Obama economic aides and advisers Friday morning. One or both agencies are expected to release information on preliminary findings after trading closes today.
The official said Shapiro and Gensler were asked to perform more "forensic accounting" on the underlying causes of the wild ride on Wall Street. The early conclusions are not absolute, the official stressed, but represent the best early analysis and conclusions data gathered so far.
According to the official, while the original trigger is unclear, it appears high volume trades on the Chicago exchange fueled higher sales volume on the New York Stock Exchange. When sales accelerated on the NYSE, built-in trading slow downs meant to minimize huge sell-offs took effect. In reaction, the official said, transactions from the slow-downed Dow shifted to other markets, such as NASDAQ and options exchanges.
This shifting of trades from exchange to exchange were also fueled, the official said, by computer-managed analysis of price discrepancies, meaning if a price spread becomes apparent and falls within a built-in trade range, the computer shifts from one exchange to another.
