U.S. securities regulators said on Wednesday they are moving forward with technical fixes to the still-unexplained May flash crash, but some market players say they want a more wholesale review of high-speed trading.

A regulatory advisory committee is still probing exactly what went wrong during the May 6 crash, which sent the stock market plunging 700 points within minutes and is weighing adjustments that aim to prevent a repeat.

The committee -- a joint effort of the Securities and Exchange Commission and the Commodity Futures Trading Commission -- brought together money managers, brokers and academics at a hearing on Wednesday to get their views on what happened and how to fix it.

We don't have a rule here that was broken that caused this, said CFTC Commissioner Michael Dunn after the hearing, urging the advisory panel to recommend rules of the road to prevent a repeat performance.

One thing really struck me today ... was hearing from these panel members that what happened on May 6 can happen again. In fact they expect it to happen again,

So far, the SEC has taken a targeted approach to reforms with stock-trading pauses called circuit breakers and better auditing of all buy and sell orders.

SEC Chairman Mary Schapiro said a fast fix that calmed the market was needed. She also listed some technical areas that may yet need changes, including the use of market orders, stub quotes, price collars, and self-help rules used by the dozen U.S. exchanges where today's high-speed trading is done.

The agency is determining whether to deter or regulate stub quotes, in which market makers quote well off the public price of stocks, and placing collars on market orders to keep them relatively close to a reference price.

Chris Nagy, TD Ameritrade Holding Corp's managing director of order routing, said collars would hurt his brokers' individual clients. What we need to look at is addressing the structure of the markets more, he said. There was a complete evaporation of liquidity in the marketplace during the crash.

Others at the CFTC-hosted meeting said fragmented markets and the explosion of high-frequency algorithmic trading may warrant a more sweeping revamp of the marketplace.

We believe a more fundamental consideration is warranted, and this is whether the current market structure has become too focused on the speed of execution over all other factors, said Kevin Cronin, director of equity trading at money manager Invesco Ltd.

At some point, we believe that speed and price discovery have an inverse relationship, and this dynamic needs to be well-understood.


In early September, regulatory staff will issue a follow-up report on the crash, CFTC Chairman Gary Gensler said. The advisory committee will consider the report and make recommendations, perhaps in October, he said.

Regulators and exchanges have thus far pointed to a rare alignment of events on May 6 in the high-speed, electronic marketplace in which stocks, futures and exchange-traded funds traded simultaneously on dozens of venues at record volumes.

Disparate exchange rules, a lack of liquidity and market jitters over Europe's escalating debt crisis are believed to have played a role in the flash crash.

Schapiro said the process of breaking thousands of erroneous trades after the crash was neither clear nor transparent and has created uncertainty for investors about how such trades would be handled in the future. The SEC has proposed rules for trade-breaking.

Although exchanges canceled thousands of trades after markets closed, the crash brought steep losses to some. Goldman Sachs Group Inc this week cited the flash crash as a factor in why it had 10 days of trading losses in the second quarter.

Invesco's Cronin told the committee that the prospect of trade breaking likely exacerbated the plunge that afternoon. Charles Rotblut, vice president of the American Association of Individual Investors, said one of the crash's biggest impacts was on investor confidence.

Trading volumes have dropped precipitously from the record highs reached in May, and worries have grown that whipsawed investors, particularly individuals, have retreated from the sharp volatility.

David Ruder, joint committee member and a former SEC chairman, said it seems that these type of events will continue. I just don't know what we can do to avoid this kind of computer-generated loss of confidence.

(Reporting by Jonathan Spicer and Roberta Rampton; Editing by Derek Caney, Maureen Bavdek, Gunna Dickson and Steve Orlofsky)