SEC Chair Mary Schapiro made a stunning admission during House subcommittee hearings last week seeking answers to the May 6 hit and run in the stock market which briefly trimmed 998 points off the Dow and caused massive losses to small investors who had placed stop loss orders on individual stocks.
According to Ms. Schapiro, the SEC has no consolidated audit trail that captures time and sales in a chronological order among the 40 or more electronic trading platforms and exchanges that constitute today’s deeply fragmented U.S. stock market.
Ms. Schapiro said in her testimony before the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises that there were 66 million trades on May 6, coming from the 40 or more stock trading venues. The SEC has requested the individual trading records and must figure out how to review all the disparate trading in sequential time order. Some trading records reside at unregulated entities like hedge funds. Other trades are done by dark pools, internal matching of buys and sells inside brokerage firms (benignly called internalization) and over the counter derivative trades that could impact the stock market but have no oversight by anyone. Ms. Schapiro said she has issued subpoenas but didn’t say to whom.
Ms. Schapiro’s testimony raises the question as to whether the SEC has been properly monitoring potentially rigged trading in real time up to this point.