Regulators probe market plunge

U.S. federal regulators say the leaders of major securities exchanges have agreed in principle to a uniform system of circuit breakers that would allow slow trading during intense market volatility.

Report says erroneous trades now ruled out as cause

U.S. federal regulators said Monday the leaders of major securities exchanges have agreed in principle to a uniform system of "circuit breakers" that would allow slow trading during periods of intense market volatility.

The announcement came after meetings between regulators and exchange officials in Washington on what might have caused Thursday's market plunge.

A weary floor trader at the Hong Kong Stock Exchange watches on Friday as world markets sold off, a day after the Dow Jones industrials plunged 1,000 points at one point Thursday, the biggest drop ever during a trading day.

Mary Schapiro, chair of the Securities and Exchange Commission, said the heads of the biggest exchanges have agreed to a rough plan with details "to be refined over the next day."

Included in the agreement are six exchanges, including the New York Stock Exchange and Nasdaq.

The absence of a uniform system is being looked at as a possible trigger for last week's historic stock market plunge.

Regulators and the exchanges have been reviewing millions of trades made during the computerized sell-off, which at one point drove the Dow Jones Industrial Average down by nearly 1,000 points. The Dow later recovered to close down 342 points.

The Securities and Exchange Commission is leading the investigation with the Commodity Futures Trading Commission.

Regulators now believe a small number of erroneous trades was not responsible for the plunge, contrary to earlier speculation.

New York Stock Exchange traders watch Thursday as the market plunged in a matter of minutes. ((Henny Ray Abrams/Associated Press))

They suspect the cause was a not-yet-understood interaction among multiple, high-speed, computerized trading programs that are pre-programmed using mathematical models.

Those programs account for two-thirds of all stock trading in the U.S.

On Thursday, the New York Stock Exchange invoked a measure to slow down trading.

Some analysts believe that drove some trades onto other electronic exchanges, leaving fewer buyers and sellers to help set prices, which would have added to the volatility in prices.

Both the SEC and the CFTC rely heavily on exchanges to write and enforce their own rules and those rules vary widely among exchanges. Regulators also rely on the exchanges to flag suspicious trades and help them narrow the focus of their investigation because market-wide trading data is not collected in a single location.

Instead, each exchange's trades are reported to its designated self-regulator — often part of the same company that owns the exchange.

With files from The Associated Press