The top U.S. securities regulator said no single event had been found to explain Thursday's mysterious market plunge, but the shocking drop was unacceptable and additional safeguards were coming.

U.S. Securities and Exchange Commission Chairman Mary Schapiro said on Tuesday it would take time to pinpoint the cause but reiterated an agreement with major exchanges to strengthen trading curbs in response to large market moves.

The markets failed many investors on May 6, and I am committed to finding effective solutions in the very near term, she said in testimony to the U.S. House of Representatives Subcommittee on Capital Markets.

Although Schapiro gave greater weight to theories that a confluence of events were responsible, no regulator or exchange has provided a full account of events or concluded what caused a lightning-fast 700-point drop in the Dow Jones Industrial Average that rattled investors worldwide.

Commodity Futures Trading Commission Chairman Gary Gensler said his agency asked some traders for all communications and positions related to E-mini Standard & Poor's 500 futures contracts. That suggested a more muscular thrust in the complicated probe, and bolstered industry rumors circulating around that contract over the last five days.

Schapiro and Gensler both said in their written testimony that computer-driven high frequency trading (HFT) strategies may have exacerbated the sell-off when some of those firms stopped making markets in stocks and futures contracts.

But the regulators were unclear about how much of the 10-minute market plunge could be attributed to HFT firms temporarily turning off their machines.

As regulators and executives sat down Tuesday afternoon to face anxious lawmakers, exchanges pitched ideas for market-wide circuit breakers that would curb trading, and CME Group Inc attempted to tamp down speculation that its E-mini was the epicenter of events.


Schapiro said SEC staff were now on site at all major markets to monitor trading conditions.

Regulators were sifting through more than 17 million trades in listed equities in the hour beginning at 2 p.m. EDT (1800 GMT) on May 6, said Schapiro. She cited the growth of trading in multiple markets over the past few years for the complexity of the probe.

But in some preliminary observations, Schapiro sounded skeptical that a large erroneous trade, the so called fat finger scenario, had triggered the brief stock rout.

Schapiro also said there did not appear to be any unusual trading in Procter & Gamble Co's stock ahead of the decline. Nor had any computer hacker or terrorist activity been identified.

The drop in stocks followed the drop and recovery in the value of the E-mini contracts, but Schapiro said the fact that stock prices follow futures prices does not demonstrate what may have been the trigger.

Gensler said his agency's inquiries showed the 10 largest traders in those contracts were on both sides of the market, providing liquidity, during the May 6 events, and clearing and settlement worked effectively and without incident.

He said regulators will give Congress joint preliminary findings next week. Schapiro declined to commit to a deadline for determining the cause.


Under heavy pressure from the SEC and the Obama administration, the exchanges have had to reconcile most of their differences and come up with ways to address their disparate trading systems.

The SEC 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.

Schapiro told lawmakers that included agreement on a need for circuit breakers that would apply to individual stocks, with the exact mechanism to be refined later on Tuesday.

Nasdaq OMX Group Inc said an internal analysis found no system malfunction or errant trade, adding in prepared testimony to lawmakers that it backs adjusting an existing market-wide circuit breaker that halts trading.

NYSE Euronext, in prepared remarks to the panel, said regulators should require all trading venues use a coordinated mechanism to pause trading.

CME, the world's biggest futures exchange operator, said there needed to be better coordination across futures, securities and options markets.

Backbiting initially broke out among the exchanges as they blamed one another in the hours after the shock trading jolt, but the sniping has since died down as the main market venues propose reforms that they believe they can live with.

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.

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.

But the exchanges still have some differences.

Nasdaq OMX said in its testimony that the E-Mini was a factor in the plunge.

But CME Executive Chairman Terrence Duffy disagreed, and said the E-Mini contract was liquid during the plunge and that the futures markets functioned properly.

(Reporting by Jonathan Spicer and Matthew Goldstein in New York, Rachelle Younglai, Roberta Rampton, Christopher Doering, Kim Dixon, and Phil Wahba in Washington, and Ann Saphir in Chicago; editing by Tim Dobbyn)