A big U.S. exchange operator said on Tuesday there was no smoking gun to explain Thursday's mysterious market plunge, while regulators and exchanges solidified plans to adopt circuit breakers.
Nasdaq OMX Group Inc said an internal analysis found no system malfunction or errant trade, adding in prepared testimony to U.S. lawmakers that it backs adjusting an existing market-wide circuit breaker that halts trading.
NYSE Euronext, also in prepared remarks obtained by Reuters, said regulators should require all trading venues use a coordinated mechanism to pause trading.
Separately, a source said new circuit breakers to halt precipitous drops in individual stocks is a done deal.
Top regulators and exchange executives are set to face lawmakers later on Tuesday, with the cause of Thursday's market drop, which rattled investors worldwide, still not identified.
Circuit breakers have emerged as a key solution despite the dearth of answers. While breakers exist for broader market drops, those were not breached on Thursday.
Any new breakers would likely trip when individual stocks fell by a set amount in a set time frame. The source requested anonymity because the discussions between regulators and exchange operators are private.
Nasdaq OMX suggested halting trading for 15 minutes when the Standard & Poor's 500 index drops by 5 percent; for an hour when it drops 10 percent; and for the rest of the trading day when there is a 20 percent drop.
Currently, the breakers are tripped at the 10-percent and 20-percent thresholds.
Both the Dow Jones Industrial Average and S&P never reached the crucial trigger point on May 6. The Dow fell as much as 9.2 percent and the S&P was off as much as 8.6 percent during the latter half of Thursday's trading day.
The U.S. Securities and Exchange Commission hosted a meeting Monday with the heads of major exchanges, and said afterward the parties agreed to a framework that would strengthen circuit breakers and safeguard markets from such chilling drops.
E-MINI BACK IN SPOTLIGHT
Multiple sources said regulators still have not pinpointed the exact cause of last week's 20-minute market roller coaster, when many stocks usually regarded as safe dropped precipitously for several minutes before recovering most of their losses.
One factor in the plunge was trading in a June-dated futures contract called the e-Mini, which tracks the S&P 500, Nasdaq OMX said in its testimony.
Securities regulators have all but ruled out foul play or a deliberate attempt to spark a widespread market sell-off as a cause of the plunge, said several people familiar with the ongoing investigation, but who could not comment publicly because the inquiry is not complete.
SEC Chairman Mary Schapiro and Commodity Futures Trading Commission Chairman Gary Gensler are due to appear with exchange executives before a House Financial Services capital markets subcommittee hearing on Tuesday, beginning at 3 p.m. EDT (1900 GMT).
Schapiro is expected to provide lawmakers with guidance on when the SEC will produce a timeline of events, sources said.
Also due to appear are NYSE Euronext Chief Operating Officer Lawrence Leibowitz, CME Group Inc Executive Chairman Terrence Duffy, Nasdaq OMX Transaction Services Executive Vice President Eric Noll, and Robert Cook, the director of the SEC's division of trading and markets.
Meanwhile, the SEC and CFTC said on Tuesday they had created a committee to advise the market watchdogs on emerging issues in the wake of Thursday's sell-off.
The committee, which includes former CFTC chairman Brooksley Born, will be charged with reviewing the market plunge and making recommendations on the market's structure that may have contributed to volatility and disparate trading rules across markets.
The sharp fragmentation of the U.S. marketplace has also slowed the investigation, multiple sources said.
The New York Stock Exchange and the Nasdaq Stock Market now execute less than 35 percent of all stock trading, after regulatory changes over the last decade seeded the growth of dozens of alternative trading venues.
(Reporting by Jonathan Spicer; editing by Tim Dobbyn)