NEW YORK In the hours and days after last year's "flash crash," it seemed like Wall Street's high-tech marketplace was in for big changes.
The May 6 market plunge confused and panicked investors, outraged politicians, and shamed regulators and exchanges who had no answers. The next day, President Barack Obama promised that U.S. authorities would do what was needed to prevent it from happening again.
Yet a year later, little has changed -- suggesting that while the flash crash was historic, it was not transformative.
"The flash crash was a warning shot over the bow that there is potential instability as a result of all this computerized trading," said Robert Engle, who is on a special committee that investigated the crash and pitched some radical fixes to regulators.
"The response so far is a partial one, which really reduces the probabilities of there being a major and devastating version of this. But it's not ultimately the solution," said Engle, a finance professor at NYU Stern School of Business.
With Europe's debt crisis keeping markets on edge on May 6, 2010, a big futures sale sparked a cascade of selling in the stock market. The high-frequency algorithmic traders that now supply much of the market's orders started bailing out, leaving nothing to stop the stampede to sell at any cost.
The Dow Jones industrial average plunged nearly 700 points in minutes that afternoon, eliminating $1 trillion in paper value before rebounding nearly as quickly. Blue-chip stocks hit record lows while others such as Accenture Plc traded for a penny, prompting thousands of trade breaks and wrecking havoc on investments.
Given that the crash was unprecedented, and the widespread belief it could happen again any day, the regulatory response has been restrained.
The U.S. Securities and Exchange Commission has so far made only one structural adjustment to markets: trading pauses known as circuit breakers. The regulator also made some noncontroversial nips and tucks around the edges and is mulling further changes, but for now at least, an overhaul is nowhere on the horizon.
"Not enough has been done," said Andrew Brooks, head of U.S. equity trading at T Rowe Price, a big Baltimore-based asset manager.
"Do we know who trades all the large stuff? Do we know the nature of the counterparties in the marketplace today? The answer is no, and it's crazy."
So-called "mini flash crashes" have made it hard to forget the big one.
Over the last year, shares of Cisco Systems Inc, Apple Inc, and, last month, 10 new exchange-traded funds each took rapid, mysterious dives. Just this week shares of more than 50 companies including Pfizer Inc were slammed with bad trades that had to be canceled.
The single-stock circuit breakers, adopted in June last year, limited the damage in many of these cases. They would have come in handy on May 6, said Chris Concannon, a partner at proprietary algorithmic trading firm Virtu Financial.
"Even a 5 second circuit breaker could have avoided the bad trades that went off that day," said Concannon, a former head of transaction services at Nasdaq OMX Group.
The circuit breakers, which cover hundreds of U.S. stocks and ETFs, are to be replaced by a "limit up-limit down" system that keeps shares within a recent price range, without halting trading altogether.
It may be that SEC Chairman Mary Schapiro and her counterpart at the Commodity Futures Trading Commission, Gary Gensler, decided the crash only warranted such measured tweaks to an otherwise healthy market.
This week, Schapiro said the steps taken "go a really long way toward fortifying our market structure," though she added: "Can I guarantee we will never have another flash crash? No."
Rule overhauls in the late 1990s and again in 2005 seeded today's mostly electronic, highly fragmented market in which trades are cheaply executed in milliseconds, and computer codes flood the dozens of trading venues with flickering quotes.
If another revolution is coming, it's found in the 14 suggestions made in February by the Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues.
But even NYU's Engle, one of the committee's eight members, said the more radical ideas -- fees for canceling orders, and a so-called "trade at" rule that would clamp down on anonymous trading at market makers like Citigroup Inc and UBS AG -- need more study before they are adopted.
"The issues are complicated and there are a lot of self interested arguments on both sides," said Joe Mecane, co-head of NYSE Euronext's U.S. cash markets. "So it's difficult to predict whether we end up with more fundamental changes as we work through this."
The SEC and CFTC have not yet responded to the committee, which is unsurprising given the overhang of the enormous U.S. Dodd-Frank bill that requires the agencies to write more than 50 new rules for Wall Street.
"We've both got so much on our plate right now. There is no doubt that I think we'll eventually get to this ... but it's crazy," CFTC Commissioner Jill Sommers said of the flash crash response, in an interview. "We just can't get to everything."
(Reporting by Jonathan Spicer; Additional reporting by Christopher Doering and Sarah N. Lynch in Washington; Editing by Richard Chang)