Regulators probing the stock market "flash crash" last May still have not uncovered a single cause but will point to "stub quotes" and other previously identified issues as having exacerbated the market's dramatic drop, according to two sources familiar with the probe.
A third source said the U.S. Securities and Exchange Commission is still asking about a "smoking gun" that might explain the May 6 crash, when the Dow Jones industrial average plunged some 700 points before sharply recovering, all in about 20 minutes.
Regulators are soon due to issue a follow-on report on the crash, which rattled investors worldwide and exposed flaws in the high-speed electronic marketplace.
So far, the report by market regulators does not contain a lot of new information and is expected to repeat earlier findings that a number of events caused the crash, two sources said. The sources requested anonymity because regulators are still collecting data and finalizing the report.
The sources said the report will point to stub quotes — orders placed by marketmakers that are well off the market prices for stocks — as one of the structural issues that contributed to the plunge.
"Quote stuffing," in which large numbers of rapid-fire stock orders are placed and canceled almost immediately, will not be fingered as one of the causes of the crash, sources have said.
The SEC is increasingly probing market data from other trading days, looking for possible problems with excessive numbers of buy and sell orders, the third source said.
The SEC has already adopted a pilot program to help prevent a repeat of the crash. That circuit-breaker program pauses trading in a single stock if that stock is in crisis.
The SEC also wants to ban stub quotes and is expected to propose such a rule in the near future.
