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CFTC: SEC "flash crash" study draws another skeptic

By Jonathan Spicer

NEW YORK (Reuters) - A single trader alone could not have caused the "flash crash," a report by Instinet said on Monday, adding its voice to those casting doubt on a landmark regulator report that sought to explain the May market plunge.

The U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission issued a September 30 report that said a $4.1 billion sale of E-mini futures contracts helped trigger the unprecedented, lightning-quick crash and recovery of May 6.

The 104-page report also concluded that high-frequency traders offsetting positions between futures and stocks, and a crush of orders to sell-at-any-price, helped exacerbate the liquidity crisis that afternoon.

Instinet, a brokerage and alternative trading venue operator owned by Nomura Holdings Inc <8604.T>, said the big sell order "could not be the singular cause" of the crash.

"However, the interconnection among markets, the order and the method with which it was executed likely served as a catalyst for the reduction in liquidity and the 'erroneous' stock trades experienced seconds later," it said.

"Based on our research, we do not find pinning the only cause of the 'flash crash' to a single order satisfying."

The joint CFTC-SEC report did not blame the firm that made the sale -- which Reuters identified as Waddell & Reed Financial Inc <WDR.N> -- outright for causing the crash, and noted that the European debt crisis infected the overall market with uncertainty on May 6.

The regulators said the trade resulted in the largest net change in the daily position of any trader in the E-minis since the beginning of the year.

Instinet, in its report titled 'Flash Crash: A Smoking Gun?', said that sale "could be considered large," but "not unduly so" given the average daily volume of E-minis.

Instinet's report comes as regulators increasingly defend their findings, meant to finally explain the flash crash.

Earlier this month, research firm Nanex downplayed the impact of Waddell's trades, the bulk of which it said occurred after the market bottomed. Waddell had supplied Nanex with trading data, Nanex said.

(Reporting by Jonathan Spicer, additional reporting by Herbert Lash; Editing by Gary Hill)