The U.S. Securities and Exchange Commission (SEC) today released its highly anticipated report reviewing the May 6 "flash crash," in which North American stock markets (including the Toronto Stock Exchange) lost billions of dollars of value in just a few minutes.
The report was expected to say that a single trade by Waddell & Reed
contributed to the crash when it sold a large order of futures contracts in a very short time. Although Waddell & Reed wasn't named in the report, theSEC did say
that a large trader helped trigger the crash through its use of an algorithm to sell a large number futures contracts. Because of the algorithm, the trader's computer system was able to execute this extremely large trade in just 20 minutes, triggering further selloffs.
The SEC's report is consistent with a report released by the Investment Industry Regulatory Organization of Canada (IIROC) last week. The IIROC report found no evidence of erroneous orders or computer glitches leading to the U.S. flash crash, but it did point out that a number of e-traders quickly withdrew from the Canadian markets immediately after U.S. markets crashed in the middle of the afternoon on May 6, which it says put further pressure on prices. The report has highlighted concerns that Canada could be at risk of a similar flash crash.
In attempt to avoid a Canadian flash crash, IIROC announced Wednesday that it has installed an advanced single-window surveillance system
on Wednesday to monitor all equity markets in Canada. The system is meant to allow IIROC to perform surveillance across multiple markets and to keep up with the dramatic growth of high-speed electronic trading in Canadian equity markets.