WASHINGTON (Reuters) - Two Democratic senators on Friday called for an amendment to the financial reform bill, asking U.S. regulators to report on the causes of Thursday’s market plunge and whether circuit breakers are needed for computer-driven trading.
Senators Ted Kaufman and Mark Warner asked Christopher Dodd, chairman of the Senate Banking Committee, to add their amendment to the massive financial reform legislation moving through the Senate, according to a copy of the letter obtained by Reuters.
The amendment would direct the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission to issue two reports that would explore trading reforms, including risk controls over trading errors and a requirement that certain electronic liquidity providers maintain “fair and orderly markets.”
The SEC and CFTC have already said they are reviewing the unusual trading activity on Thursday that resulted in a nearly 1,000-point plunge in the Dow Jones industrial average.
The sudden stocks meltdown stemmed from growing concern about the Greek debt crisis and was widely believed to have been exacerbated by at least one large erroneous trade.
Market participants have speculated that high-frequency and algorithmic trading magnified the wild swing.
“A temporary $1 trillion drop in market value is an unacceptable consequence of a software glitch,” Kaufman and Warner said in the letter.
Their amendment would direct the SEC and CFTC to issue a report to Congress within 60 days that covers the causes of Thursday’s incident and how the SEC can evaluate whether algorithmic trading presents a systemic risk to the markets.
That report would also cover the potential need for industrywide pre-trade operational risk controls, and how the agencies intend to “tag” high frequency traders over a certain volume threshold.
Within 180 days, the agencies would have to report on whether regulators should insist on circuit breaker mechanisms to prevent computer-driven trading from running amok.
It would also explore whether certain unregulated electronic liquidity providers should be required to maintain “fair and orderly markets,” the letter said.
It is unclear whether such an amendment will be among those that will be addressed on the Senate floor in the coming weeks.
Reporting by Margaret Chadbourn and Karey Wutkowski; Editing by Richard Chang