The sharp fragmentation of the U.S. stock marketplace -- seen as a cause of last week's mysterious market dive -- is also slowing down regulators' ability to piece together what happened, two sources familiar with the matter said on Monday.
Four days after a shocking market plunge and quick rebound -- all in the span of 20 minutes -- regulators are still scrambling for answers, and preparing for an appearance before lawmakers impatient with the lack of progress.
U.S. senators, who are in the middle of a massive rewrite of rules for financial markets and firms, on Monday upped the ante with one backing a market-wide circuit breaker and another questioning regulators' expertise.
The U.S. Securities and Exchange Commission continues to aggregate data from the 50 some electronic trading venues, one source said, suggesting the fragmentation is hampering the ongoing investigation.
As part of the probe, the SEC met in Washington on Monday with the heads of the leading U.S. stock market operators to address whether trading curbs should kick in to halt sudden plunges in individual stocks.
NYSE Euronext Chief Executive Duncan Niederauer, Financial Industry Regulatory Authority CEO Richard Ketchum, and others told reporters that the meeting was constructive, without providing more details about what was discussed.
The exchange heads and key regulators head next to the Treasury Department for a meeting with Treasury Secretary Timothy Geithner, scheduled for 2 p.m. EDT.
Thursday's bone-chilling drop saw stocks usually regarded as safe inexplicably drop precipitously for several minutes before recovering most of the losses. It sent the Dow Jones Industrial Average briefly into a 1,000-point tailspin and rattled investors worldwide.
The source, who requested anonymity because the probe is ongoing, said details still need to be hammered out on a proposed market-wide circuit breaker meant to slow or stop such drops in the future.
Regulators and exchange heads are expected to give a progress report on Tuesday when they testify before a House Financial Services subcommittee.
Due to appear are NYSE Euronext Chief Operating Officer Lawrence Leibowitz, CME Group Inc Executive Chairman Terrence Duffy and Nasdaq OMX Group Inc Transaction Services Executive Vice President Eric Noll.
SEC Chairman Mary Schapiro, SEC division of trading and markets director Robert Cook, and Commodity Futures Trading Commission Chairman Gary Gensler will also testify, the subcommittee said.
Senator Charles Schumer, a Democrat from New York, called on Monday for new systemwide circuit breakers that would put the brakes on free-falling individual stocks when the circuit breaker on one of the major exchanges is triggered.
The increasing fragmentation of our equities markets brings with it certain benefits, but there are clearly costs as well, and it appears that our fragmented market structure may very well have contributed to the difficulties we experienced last Thursday, Schumer said in a letter to the exchange heads and top regulators.
He also repeated his call for a consolidated reporting system to enable regulators to better monitor trading activity.
Senator Mark Warner, a Democrat on the Senate Banking Committee, said he talked to Schapiro late on Friday and said regulators were still digging for information.
I think the regulators have got the regulatory authority; what I wonder is whether they've got the technology knowledge, Warner said in an interview on CNBC Television. He said the SEC may need maybe a few less lawyers, and a few more technology quants.
USING NYSE CURBS AS TEMPLATE?
The source said a proposed market-wide circuit breaker would be based on the movement of specific stocks. Properly crafting and introducing it in the marketplace would ideally take time, although the SEC may push for quicker implementation, the source said.
The NYSE introduced a trading curb on its floor Thursday that forced most trading to all-electronic exchanges such as the Nasdaq Stock Market and NYSE Euronext's electronic Arca venue, which did not have similar curbs -- a lack of uniformity seen as having exacerbated the wider market's drop.
Now, regulators and the industry appear to be eyeing NYSE's system as a template for the whole marketplace.
Trading speeds and volumes have ramped up over the last decade as regulators encouraged the proliferation of new trading venues to challenge the NYSE's and Nasdaq's near monopoly.
About five years ago, the NYSE executed more than 80 percent of trading in its listed securities. Now, parent company NYSE Euronext executes about 34 percent.
The SEC recently raised some red flags about the fragmented marketplace, proposing rules late last year that would shine more light on so-called dark pools, which are alternative trading venues that keep investors' intentions anonymous.
(Reporting by Jonathan Spicer in New York and Rachelle Younglai in Washington, with additional reporting by Karey Wutkowski and Kevin Drawbaugh in Washington; editing by Dave Zimmerman and Tim Dobbyn)