WASHINGTON/NEW YORK Oct 23 U.S. regulators are taking a closer look at unprecedented volatility in stock markets near the close of trading, hunting for any signs of manipulation.
"It is something we're looking at," said Brendan Intindola, a spokesman for the Financial Industry Regulatory Authority. "We're really taking an extra close look at it in the light of the volatility we've seen in the market in recent weeks."
FINRA typically looks at "market on close" activity, which are orders executed as near to the end of the exchange day as possible.
But its surveillance unit has now ratcheted up its examination of possible efforts by some firms to try to raise the price of a stock for marking near the end of the trading day. "Marking the close" is a form of market manipulation.
Firms could do this by buying a small number of shares to drive up a certain stock's price, and then sell a much larger number of shares at the elevated price right before the close.
In eight of the first 12 trading days in October, the range of the Dow Jones industrial average .DJI has been greater than 500 points. The overall uncertainty about the future direction of stocks is being reflected in Wall Street's so-called fear gauge which surged to an unprecedented reading of 81.17 one week ago.
The Chicago Board Options Exchange Volatility Index .VIX has come off that lofty level but still remains elevated at 67.80 on Thursday, indicating investors remain fearful.
"There's been material turnarounds in the last 15 to 30 minutes of trading over a couple of trading sessions and there has been no fundamental reason," said Keith Wirtz, chief investment officer of Fifth Third Asset Management in Cincinnati.
"There's something unexplainable going on... the wild swings are leading to speculation that something is going on and perhaps investigations into these erratic moves may take place, if they have not already."
Thomas Gira, executive vice president and head of market regulation at FINRA, said at an Investment Company Institute conference earlier this month that such artificial price setting is something the regulator is "worried about."
The Securities and Exchange Commission declined to provide details on any specific investigations. "The commission is always monitoring the markets for abusive, manipulative activity," an SEC spokesman said. (Reporting by Karey Wutkowski and Jennifer Ablan; Editing by Tim Dobbyn)