S.E.C. Enforcement Unit Investigating May 6 Crash

S.E.C. Enforcement Unit Investigating May 6 Crash
By EDWARD WYATT
Copyright by The New York Times
Published: May 20, 2010
http://www.nytimes.com/2010/05/21/business/21crash.html?hpw



WASHINGTON — The enforcement division of the Securities and Exchange Commission has begun looking into the sharp stock market drop of May 6, the chairwoman of the agency said Thursday.

In written testimony to a Senate subcommittee about the May 6 market activity, the chairwoman, Mary L. Schapiro, said that the S.E.C. is “looking at a wide variety of actions on May 6 involving the full range of market participants.”

“We will examine such things as whether market professionals fully met their obligations, including, where applicable, their best execution obligations, and whether the decision to bust trades was made and applied fairly and consistently among investors,” Mrs. Schapiro said. “If we identify any activity that violates the securities laws, we will take appropriate action.”

Mrs. Schapiro said the enforcement investigations were prompted in part by complaints from individual investors “who used stop loss orders to protect them from rapidly declining markets.”

“It appears that some investors’ accounts were liquidated as share prices plummeted only to have stock prices close significantly above their sale prices,” she added.

In response to questions from the Senate panel, Mrs. Schapiro said that the enforcement division also was looking at whether any market participants that had “affirmative liquidity obligations,” or a legal obligation to continue making markets and offering to buy and sell individual stocks, had stepped away from the market during the volatility.

The S.E.C. and the Commodity Futures Trading Commission have been examining the market drop of May 6 for two weeks. Earlier this week, the S.E.C. said that circuit breakers would be initiated on individual stocks in the Standard & Poor’s 500 index on a six-month test basis.