As stock markets skidded further Friday, regulators scrambled to explain the cause of Thursday’s nearly 1,000-point midday dive in the Dow Jones industrial average.
The Dow endured another roller-coaster ride Friday, although nothing as dramatic as Thursday’s plunge. The Dow tumbled more than 279 points early in Friday’s session, clawed back to roughly even, but then sank again, finishing down 139.89 points, at 10,380.43.
Meanwhile, market regulators offered no quick explanations for Thursday’s debacle, which saw some stocks briefly fall from the $40 to $50 range to as little as 1 cent before snapping back.
In a statement, the Securities and Exchange Commission and the Commodity Futures Trading Commission said they were “devoting significant resources and expertise” to their effort to get to the bottom of Thursday’s “unusual trading activity.”
President Barack Obama said the inquiry would have a particular focus on “protecting investors and preventing this from happening again.”
Regulators and Wall Street officials went through millions of trades one by one Friday. It wasn’t clear how long the laborious process would take or if it would solve the mystery behind Thursday’s harrowing session.
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Amid reports that the market turmoil was caused by erroneous trades and exacerbated by computerized selling, Rep. Paul Kanjorski, D-Pa., said that on Tuesday the House capital markets subcommittee he chairs will examine what happened, calling it unacceptable for “a technological error to spook the markets and cause panic.”
Some on Wall Street speculated that the cause was a computer snafu. Others thought it was a typo made by a human trader.
“It’s troubling,” said Paul Zubulake, a senior analyst at Aite Group, a research firm. “They should be able to establish if it was an error.”
Initial criticism centered on so-called high-frequency trading in which traders on souped-up computers swap millions of shares a second. Critics say the computers have grown so powerful and lightning-quick that the slightest error can send the market reeling in minutes before human overseers can detect anything amiss.
Even some supporters acknowledged the need for some changes.
“I don’t view this as a black mark on high-frequency trading,” said Joe Gawronski, president of Rosenblatt Securities Inc., an institutional brokerage. “It’s a good wake-up call to remind people that there are reasons to slow down the market, and we should have rules to enable that.”
The plunge spooked individual investors such Roxy Lopez, a Phoenix musician and songwriter, who took 75 percent of her money out of the stock market in 2008 after losing tens of thousands of dollars during the bear market that took hold during the financial crisis.
Lopez had been preparing to boost her stock allocation but has changed her mind.
“I was just starting to feel comfortable again and I was just starting to buy some individual stocks again over the last two weeks or so,” she said. “But now with this, I don’t think I’ll put any more of my money in there. It’s too volatile, and I just don’t trust the market.”
Tribune Newspapers reporters Tom Petruno and Nathan Olivarez-Giles and The Associated Press contributed to this report.