More than five months after the volatility spike of August 24, 2015, regulators continue to review how financial markets held up, what fault lines showed themselves, and what can be done to reinforce market structure for the next trading blitz.

The U.S. Securities and Exchange Commission is still on the case. An 88-page whitepaper published in December was only the regulator’s first step in its review process, noted Daniel Gray, senior special counsel with the SEC’s Division of Trading and Markets.

“The initial report was to get the horse before the cart,” Gray said in a Jan. 28 conference call with members of the Securities Trading Association. “The idea was to get all of that data out there as a foundation, and then sift through the data to find the meat.”

On Monday Aug. 24, U.S. market participants woke up to news that China shares fell almost 9% overnight. The Dow Jones Industrial Average sank 7% at the open before recovering almost half of that by day’s end. Market volatility as measured by the CBOE Volatility Index touched a six-year high; equity trading volume totaled more than 14 billion shares, the most since 2011.

Traders and investors have noted that markets withstood the volatility burst well overall, as there were no broad disruptions or downtime. But the day didn’t do without a hitch; the opening of the trading day was messy, as only about half of S&P 500 stocks were trading on the New York Stock Exchange five minutes after the opening bell, and there were price dislocations for some exchange-traded funds.  

All 22 data points included in the SEC whitepaper are taken from publicly accessible data, such as found in the SEC’s Market Information Data Analytic System (Midas), which answers the ‘how’ questions but not the ‘who’ behind the ‘what’ of August 24, according to Gray. “It’s conceivable that there might be a part two if there was some additional information that popped up from non-public regulatory data.”

Likely sources of additional insight might come from an examination of the responses of the individual self-regulatory organizations (SROs) or from the discussions coming out of the SEC’s Market Structure Advisory Committee, which meets on February 2, he added.

Unless further investigation changes the regulator’s conclusions, Gray is certain that that the events of August 24 are not similar to the so-called flash crash of May 6, 2010.

That disruption took place in the middle of the day without any particular news driving the rapid decline of thousands of issues before an almost similarly rapid reversal, he noted. “On August 24, there was a very substantial selling prior to the 9:30 am market open of the equities exchanges. The broad market was down 5% as was indicated by the SPDR and e-mini then the market opened down around that much. The market absorbed quite a bit of selling with a decline between 7 and 7.5% before reversing and closing around 4%.”

Overall, the regulator considers that the price discovery mechanism behaved itself.

“Cleary, there was something going on over the weekend that lead to some pretty widespread selling,” said Gray. “But there didn’t seem to be any problems with the plumbing and exchange systems. The other systems also seemed to work relatively well.”