The market crash on May 06 that send the Down Jones Industrial Average momentarily down almost a record 1,000 pointswas caused by mismatch of liquidity, according to initial investigation findings issued in a joint report by the Securities Exchange Commission SEC and the Commodity Futures Trading Commission CFTC, after through investigation of hundreds of millions transactions that occurred between 2pm-3pm on that day.
The 998.5 point drop was attributed to computer glitches, sabotage and even terrorist, however the Securities and Exchange Commission and the Futures Trading Commission dissolved all these speculations, proposing the same explanation behind the stock market crash. The commissions, nonetheless, did not halt the investigations as the proposed explanations were still too vague to determine the exact reason of the slump.
They said that varying rules in different markets may have triggered large selloffs, as wells as the LRP so-called liquidity replenishment points the NYSE program that switched trading to manual auctions also managed to widen the stock swings. The heavy movement in share prices triggered the LRP auctions which encouraged the flow of orders into other exchanges extending the selling pressure in the market according to what NYSE chief operating officer, Larry Leibowitz said on May 06.
The SEC had already proposed a new set of rules that would close transactions of individual stocks that fluctuate more than 10% within 5 minutes.