SEC Checks Role of “Quote Stuffing” in May Flash Crash
September 2, 2010
The Securities and Exchange Commission is looking into whether a trading practice known as “quote stuffing” is responsible for the May 6th “”flash crash” and for placing some investors at a disadvantage by distorting stock prices, according to an article published in the Wall Street Journal Thursday.
The practice allows unusually large numbers of orders to buy and sell stocks to be placed in a fraction of a second only to be cancelled almost immediately. During the May 6th flash crash, U.S. stock markets suffered a record fall within minutes. The SEC declined to comment to the Journal on the matter.
Regulators and exchanges have pointed to a rare combination of events on May 6th in the high-speed, electronic marketplace where record volumes of trades are executed. Disparate exchange rules, a lack of liquidity and market jitters over Europe's escalating debt crisis are considered to have played a key role in the flash crash and prompted a handful of new rules including market-wide circuit breakers for stocks.
