TRading Glitch cause DOw JOnes to drop 1000 points

desideria · May 7, 2010

WOW

http://www.straitstimes.com/BreakingNews/Money/Story/STIStory_523637.html

NEW YORK - A SPINE-CHILLING slide of nearly 1,000 points in the Dow Jones Industrial Average, its biggest intra-day points drop ever, led to heightened calls for a crackdown on computer-driven high-frequency trading.

The slide, which in one 10-minute stretch knocked the index down nearly 700 points, may have been triggered by a trading error. Major stock indexes eventually recovered from their 9 per cent drops to close down a little more than 3 percent.

But the follow-through selling that pushed stocks of some highly regarded companies into tailspins exacerbated concerns that regulators can quickly lose control of the markets in a world of algorithmic trading.

'The potential for giant high-speed computers to generate false trades and create market chaos reared its head again today,' Senator Edward Kaufman said in a statement. 'The battle of the algorithms - not understood by nor even remotely transparent to the Securities and Exchange Commission - simply must be carefully reviewed and placed within a meaningful regulatory framework soon.'

Kaufman and Senator Mark Warner - both Democrats - said Congress needs to investigate the causes of the market plunge, which at its deepest point wiped nearly US$1 trillion (S$1.39 trillion) off equity values.

Citigroup Inc said it was investigating a rumour that one of its traders entered the trade, a spokesman for the bank said on Thursday. Citigroup, the third-largest US bank, currently has no evidence that an erroneous trade has been made, the spokesman said. -- REUTERS