US probes shock share plunge after market panic
NEW YORK (AFP) Ã¢â‚¬â€œ US regulators have launched an inquiry into the dizzying Wall Street plunge that left investors shaken after a wave of panic that dented confidence around the globe.
Thursday’s New York panic spread to Asia and Europe, while the factors behind the record plunge on Wall Street remained unclear ahead of a new day of trading.
The Securities and Exchange Commission and the Commodity Futures Trading Commission said the regulatory agencies and exchanges would probe “unusual trading activity” and would “take appropriate steps to protect investors.”
The tumultuous Wall Street session saw the blue-chip Dow Jones Industrial Average drop nearly 1,000 points in a matter of minutes, sparking panic and fears of a total meltdown.
The Dow later recovered, ending down three percent or 348 points — a steep drop under normal circumstances. Spooked traders were left aghast.
Andy Brooks, a trader at T. Rowe Price, speculated the culprit was a so-called “fat finger” trade, in which a trader incorrectly enters data.
“I have no idea why it happened; when it falls that far and fast and bounces back that quickly, you figure it’s an error or tech snafu,” Brooks said.
The unusual trades affected major stocks such as Procter & Gamble, which dropped 37 percent at one point, and 3M, which plunged 25 percent, setting off a chain reaction of computer-generated selling.
Rumors swirled that a Citigroup trader accidentally triggered trades worth 16 billion dollars, instead of 16 million, at the CME Group’s Chicago Mercantile Exchange.
But the CME said that trading by Citigroup in its stock index futures markets did “not appear to be irregular or unusual.”
Citi also said it had not found evidence of human error. “At this point, we have no evidence that Citi was involved in any erroneous transaction,” said company spokesman Stephen Cohen.
A congressional panel scheduled a hearing for Tuesday on the causes of the market drop.
Democratic Senator Ted Kaufman said the market plunge “must be carefully reviewed and placed within a meaningful regulatory framework soon.”
The panic appeared to engulf Asian markets Friday, with investors’ concerns centered on deepening fears that Greece’s debt crisis would spread through Europe. The currency markets also were roiled as traders flocked to the safety of the dollar.
Boris Schlossberg at Global Forex Trading said the big question now “is whether yesterday’s price action was a one-off event or the start of the second credit crunch that could derail the global economic recovery and put further stress on the risk trade.”
Eric Ryan, spokesman for the New York Stock Exchange, ruled out problems on his exchange. “We did not have any glitches or technical issues,” he said.
The tech-rich Nasdaq said its stock market “had no technology or system issues associated with the trading that occurred between 2:00 and 3:00 pm” on Thursday.
“There is no indication at this time that a Nasdaq market participant experienced a technological failure in connection with this event,” it added in a statement.
The Nasdaq said it would cancel trades executed between 2:40 and 3:00 pm that were off more than 60 percent from the start of that period.
But error or not, after three days during which Greece’s debt crisis pummeled stocks, it was clear that the sell-off was real for some investors.
At the close, the Dow had recovered to 10,520.32, a drop of 347.80 (3.20 percent).
The Nasdaq slid 82.65 points (3.44 percent) at 2,319.64 while the Standard & Poor’s 500 index tumbled 37.72 points (3.24 percent) to 1,128.15.
When the market reopens Friday, traders will be tested by key data on US unemployment and job creation in April.
Douglas McIntyre of 24/7 Wall Street predicted the market would bounce back.
“The US economy is improving inexorably while it might not be as quickly as the government or those out of work would like,” he said.
“The American markets will go higher because the financial and economic forces behind them have improved so much over the last year.”
Others said there were deeper reasons for concern, noting that banks were tightening up lending among themselves, in a move that bore similarities to the peak of the financial crisis in 2008.
This tightening is “a barometer of distress in money markets,” said Michael Panzner, an author of a book and website called “Financial Armageddon.”
“While the measure has some way to go before it reaches the kinds of extremes we saw during the Lehman Brothers bankruptcy crisis one year earlier, it’s a development that shouldn’t be ignored.”