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Foreign Exchange

FX news: CFTC and SEC come back to the flash crash

The CFTC and SEC will continue to investigate the flash crash of May 6 after previous reviews failed to come to any conclusions (CFTC and SEC review the flash crash).

Several market participants, including CME and Knight Capital, will appear before the joint advisory committee on emerging regulatory issues next Tuesday.

There has been speculation that a CME contract tied to the S&P500 index contributed to the slide, although CME has stated that it found no illegal or improper activity in its markets on May 6 and believes the automatic trade pause that kicked in at the steepest point of the decline may actually have moderated the overall slide.

Craig Donohue, CEO of CME, said in statement this week: “We have reviewed the joint report by the CFTC and SEC and we commend the agencies for their careful and thoughtful review.

“After our own examination, we believe our Stop Logic functionality provided the opportunity on May 6 to source needed liquidity at a crucial time, and we think a comprehensive, coordinated and quantitative review of the market-wide circuit-breaker levels and duration of pause should be undertaken across all market centres and trading venues.”

The CFTC and SEC will continue the investigation into July, when they expect to hear from brokerage houses and institutional and retail providers. But the need for the investigation is a curious phenomenon when there is such a push to put other markets on exchanges for their supposed stability and transparency.

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