The Senator Leading the "Flash Crash" Charge Weighs In

Two weeks after one of the wildest rides the market has ever seen, regulators still aren't sure what caused the cataclysmic drop. In what's being called the "flash crash" because of the role of high-frequency trading, close to $1 trillion in capital evaporated, followed by a sharp rebound, all within a span of 15 minutes. Procter & Gamble (NYSE: PG  ) saw its share price decline by 35%, while shares of Accenture (NYSE: ACN  ) and Boston Beer (NYSE: SAM  ) plummeted to a penny.

We do know that during this time period, the NYSE shut down computer trades on certain stocks and handed the job to humans to slow the trading. However, high-speed traders, which operate on a separate system, either continued to trade at a high speed, which magnified moves, or shut down their operations altogether, ejecting liquidity out of the market. (Keep in mind that high-frequency traders offer a lot of liquidity for the market, and their shutting down left a lot of sellers with no buyers.)

One lawmaker who's been warning about the lack of transparency and unintended consequences of the unregulated, opaque dark pools and high-frequency trading platforms is Sen. Ted Kaufman (D.-Del.). He has been calling for an investigation of high-frequency trading since last August, and he has proposed an addition to the Senate's Wall Street reform bill that would direct the Securities and Exchange Commission and the Commodity Futures Trading Commission to report to Congress on several key issues surrounding the market meltdown. I sat down with Senator Kaufman to discuss the flash crash and the conclusions he's drawing.

This is one of three segments of Jennifer's interview with Senator Kaufman. Check out Senator Kaufman's take on the financial-reform bill, and stay tuned for his thoughts about cracking down on financial fraud.

Fool contributor Jennifer Schonberger owns no shares of any of the companies mentioned in this article. You can follow her on Twitter. Accenture is a Motley Fool Inside Value choice. Procter & Gamble is a Motley Fool Income Investor recommendation. The Motley Fool owns shares of Procter & Gamble and has a disclosure policy.


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