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August 8, 2014

SEC Computer Called CAT Will Peer Into Dark Pools, Track Orders

“Around 2:30 p.m. on May 6, 2010, the U.S. stock market began to crash. It fell 600 points in five minutes, erasing about $800 billion in value. The market largely rebounded by day’s end, but investors were spooked.

“It took the U.S. Securities and Exchange Commission more than four months to piece together what had happened: A single trader’s order to unload $4 billion in futures contracts caused a price dip that set off a cascade of automated selling.

“The Flash Crash, as it was dubbed, made obvious what had been true for years — the stock market is so fragmented that computers processing orders at lightning speed can trigger a selloff before anyone spots a problem, Bloomberg Businessweek reports in its edition of Aug. 11-18.

“The idea that the regulator of the largest-capital market in the world didn’t have a consolidated view across all the different trading venues… seemed to be a glaring issue that needed to be remedied,” says former SEC Chair Mary Schapiro.”

***

“But by letting go of the CAT, the SEC is ceding power to the industry it oversees. “The CAT is moving like a glacier for a reason,” says Dennis Kelleher, president of Better Markets, a nonprofit promoting tighter regulation of the markets. “It’s not exactly in their interest to be quick about this.”

***

Read full Bloomberg article by Matthew Phillips and Silla Brush here.

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