May 7, 2010 11:38 AM by Bea Karnes, News First 5
The U.S. Securities and Exchange Commission has launched an investigation into Thursday's stock market plunge, a source familiar with the matter said Friday.
President Barack Obama said Friday that the regulatory authorities were looking into the stunning market gyrations Thursday and would report in their findings.
On Thursday, the SEC and fellow market watchdog the Commodity Futures Trading commission said they were working closely with other regulators and exchanges to review the unusual trading activity.
In an investigation, the SEC would look for any wrongdoing that may have been related to the stock market drop.
The plunge reflected growing worries about a widening financial crisis in Europe, but it was exacerbated by electronic trading that allows hundreds of millions of shares to exchange hands at the speed of light. The Dow Jones industrial average tumbled almost 1,000 points in about 30 minutes on Thursday before steadying itself somewhat and closing with a loss of 346.51 points or 3.2 percent.
There's still no clarity over what exactly happened and that uncertainty was affecting trade on Friday too.
Some reports said the sell-off might have been caused by a typographical error at Citigroup. Citigroup Inc said Friday there was no basis for rumors that it was responsible.
Citi had been conducting an investigation into the rumors on Thursday, but said on Friday morning that its investigation had determined that the rumors were false.
"Based on our review, rumors about a trading error by Citi are unfounded. It is troubling that inaccurate and unfounded rumors were spread as far as they were," Citi spokeswoman Shannon Bell said in an email.
The stock market sell-off will be examined by a congressional subcommittee at a hearing Tuesday, said U.S. Representative Paul Kanjorski, chairman of the panel, Friday.
"The financial market's dramatic swing was incredibly startling," Kanjorski, head of the capital markets subcommittee of the House of Representatives, said in a statement.
"Reports have surfaced that much of this movement was potentially as a result of a computer glitch. We cannot allow a technological error to spook the markets and cause panic. This is unacceptable."
He said the SEC must look into the matter. "Additionally, my subcommittee will hold a hearing to examine this issue," he said.