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JOINT CFTC-SEC ADVISORY COMMITTEE 

ON EMERGING REGULATORY ISSUES 

Minutes of August 11, 2010 Meeting 

The Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues (“Advisory 

Committee”) convened its third meeting at 9:00 a.m. on Wednesday August 11, 2010 in the 

Hearing Room at the Headquarters of the Commodity Futures Trading Commission, located at 

Three Lafayette Centre, 1155 21st St. NW, Washington, D.C. The meeting, which was open to 

the public, was held to provide the Advisory Committee an opportunity to hear the views of 

panelists representing various investor perspectives regarding the events of May 6, 2010. The 

agenda for the meeting included: (i) introductions of the Advisory Committee members and 

opening remarks by the co-chairs, (ii) a panel discussion on investor perspectives, (iii) reports by 

the staffs of the CFTC and SEC regarding recent calls with the Subcommittees, and (iv) closing 

discussion and comments. The meeting concluded at approximately 12:30 p.m. 

Advisory Committee Members:

CFTC Chairman Gary Gensler, Advisory Committee Co-Chair 

SEC Chairman Mary Schapiro, Advisory Committee Co-Chair 

Brooksley Born** 

Jack Brennan 

Robert Engle 

Rick Ketchum 

Maureen O’Hara 

Susan Phillips* 

David Ruder 

Joseph Stiglitz 

* Present by telephone 

** Not present 

Co-Designated Federal Officers:

James Burns Counsel to SEC Chairman Schapiro 

Timothy Karpoff Counsel to CFTC Chairman Gensler 

Commissioners of the CFTC in attendance:

From the CFTC: 

Commissioner Bart Chilton 

Commissioner Michael Dunn 

Commissioner Jill Sommers 
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Panel Discussion: Investor Perspectives on May 6

Noel Archard, Head of U.S. Products, Blackrock 

Pamela J. Craig Chief Financial Officer, Accenture 

Kevin Cronin Director of Global Equity Trading, Invesco 

Michael Mendelson Principal, AQR Capital Management 

Chris Nagy Managing Director, Order Routing Sales and Strategy, TD Ameritrade 

Charles Rotblut Vice President and Editor, American Association of Individual Investors 

CFTC and SEC Staff Presenters:

From the CFTC: 

James Moser Acting Chief Economist, Office of the Chief Economist 

From the SEC: 

Gregg Berman Senior Advisor to the Director, Division of Trading and Markets 

CFTC and SEC Staff in Attendance:

From the CFTC: 

James Moser Acting Chief Economist, Office of the Chief Economist 

From the SEC: 

Robert Cook Director, Division of Trading and Markets 

Michael Coe Counsel, Commissioner Aguilar 

David Hsu Assistant Director, Division of Trading and Markets 

I. OPENING REMARKS AND INTRODUCTION OF ADVISORY 

 COMMITTEE MEMBERS

Chairman Gensler opened the meeting by welcoming members of the Advisory Committee, 

Commissioners and staff of the CFTC and SEC, and guests in attendance for the third meeting of 

the Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues. Chairman Schapiro 

also offered her welcome, thanked those in attendance, and provided opening remarks. 

Chairman Gensler thanked the staff of the CFTC and introduced and welcomed the Advisory 

Committee members and panelist. 

II. INTRODUCTION AND QUESTIONING OF THE PANEL 

Chairman Gensler then welcomed the panel of witnesses, who each made opening statements. 

The panel focused on investor perspective of the events of May 6th, 2010 and included 

representatives of exchange traded funds (ETFs), institutional investors, retail investors, and 

corporations. Each member of the panel answered questions as presented by the Advisory 

Committee. 
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III. PRESENTATION BY CFTC AND SEC STAFF ON RECENT SUBCOMMITTE 

CALLS

Following the presentations by the panel, and after a brief break, the Advisory Committee 

received updates from CFTC and SEC staff regarding Subcommittee calls and the research 

presented therein. 

A. CFTC Staff Presentation

James Moser, Acting Chief Economist from the CFTC’s Office of the Chief Economist, 

presented an update of two calls held with the Cross Market Linkages Subcommittee, 

whose members include: Brooksley Born, Jack Brennan, David Ruder, and Joseph 

Stiglitz. 

July 6th Conference Call

E-Mini S&P Futures Trading Volume. Staff discussed their findings regarding high 

trading activity on May 6th, both at the point when prices began to significantly decline, 

and then at another point ten minutes before the close. Comparing these to price changes, 

no clear pattern emerges; however at the price trough passive buy volume much exceeded 

aggressive buy volume. In a plot of differences between aggressive buy and sell activity, 

aggressive selling is more prevalent than aggressive buying, with that difference 

increasing throughout the afternoon and reaching a minimum at the time of the sharp 

price decline. A rebound in the aggressive buy-sell difference also coincides with the 

price rebound. 

E-Mini Order Book. In regards to the E-Mini order book, staff used CME-supplied 

GLOBEX message data and re-constructed the limit-order book for the E-mini contract 

for the 6th of May. Plotting the near-inside order book depth (best five bids and best five 

offers), the order book appears to have been well balanced with the number of buy orders 

generally close to the number of sell orders. At about 2:30 p.m. ET, there was a sharp 

drop off on both sides of the near-inside order book with the drop off in orders to buy 

slightly leading, then matching orders to sell. Just prior to 3:00 p.m., orders to sell spiked 

followed by a recovery period as the order book filled in approaching its earlier levels. 

Staff has recently obtained order-book data for other days, which will be compared to the 

May 6th order book activity. 

July 29 Conference Call

Trader Classification and Trader Behavior in the June 2010 E-mini futures contract. 

During the July 29 call, staff compared data based upon the pre-event period (the three 

days preceding May 6th) to the trading behavior on May 6 to classify accounts as either 

market marketers, high-frequency traders, buyers, sellers, opportunistic traders, or noise 

traders. Staff noted that the largest differences are for the Seller and Opportunistic Seller 

categories. Seller activity as a percentage of trades decreased from 10.10% in the preevent period to 6.95% in the event period. Opportunistic Trader activity increased from 
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33.34% in the pre-event period to 40.13% in the event period. Also, staff noted that 

Noise Trader activity, albeit relatively small in both periods, did drop by half—going 

from 2.22% of trades in the pre-event period to 1.04% of trades in the event period. Staff 

will continue their analysis of this data and the results of this analysis will be presented in 

future reports. 

B. SEC Staff Presentation

Gregg Berman, Senior Advisor to the Director, from the SEC’s Division of Trading and 

Markets, presented an update of two calls held with the Pre-Trade Risk Management 

Subcommittee, whose members include: Robert Engle, Rick Ketchum, Maureen O’Hara, 

and Susan Phillips. 

July 7 Conference Call

Direct Insights from Market Participants. Staff discussed preliminary observations of 

SEC interviews held to-date with market participants. Staff reported that most of the 

firms interviewed significantly curtailed or completely halted their market making 

activities during and immediately after the rapid downturn in prices at or around 2:40 on 

the afternoon of May 6th. As automated trading systems paused some market makers 

withdrew completely from the markets and relied on auto-generated stub quotes to fulfill 

their market maker obligations. Others fell back to manual trading but had to limit their 

focus to only a subset of securities and were not able to keep up with the unprecedented 

volumes that were ever more concentrated as market makers in similar securities 

withdrew. Through the interview process Staff was able to trace back a significant 

number of trades executed at stub-quotes, and that were subsequently deemed erroneous 

and broken by the exchanges later that evening. 

July 29 Conference Call

ETFs, LRPs, and the Self-Help Exception. Three presentations were given to the PreTrade Risk Management Subcommittee. The first was given by the SEC’s Division of 

Investment Management and covered exchange traded funds (ETFs) It provided a 

background on the ETF markets and how trading of ETFs differs from other similar 

instruments such as open-ended mutual funds. The second presentation was given by 

the New York Stock Exchange regarding its use of Liquidity Replenishment Points 

(LRPs), which represent price bands within which an individual security can trade in an 

automated fashion. The third presentation was given by the SEC’s Division of Trading 

and Markets and covered the “Self-Help Exception” to Rule 611 of Regulation NMS, 

which generally requires trading centers to implement reasonable policies and procedures 

to prevent trade-throughs of protected quotations at other markets. 

IV. CLOSING DISCUSSION AND COMMENTS 

Following this presentation, Chairman Gensler opened the meeting up for statements, questions, 

and discussion from the Advisory Committee members and the Commissioners and Staff from 
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both the CFTC and the SEC. After the comments, Chairman Gensler opened discussion of the 

minutes of the June 22nd Meeting of the Advisory Committee for approval. There being no 

discussion, a motion to approve the minutes was made, seconded, and approved by a unanimous 

vote. 

Following approval of the minutes, Chairman Gensler asked if there was any other Advisory 

Committee business. Hearing none, a motion to adjourn the meeting was made, the motion was 

seconded, and the members voted to adjourn the meeting. The meeting was adjourned at 12:36 

p.m. 
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CO-CHAIR CERTIFICATION

I hereby certify the accuracy of this record of the proceedings of the Joint CFTC-SEC Advisory 

Committee on Emerging Regulatory Issues. 

/s/ Gary Gensler November 9, 2010 

_______________________________________ ________________________ 

Gary Gensler, CFTC Chairman Date 

Advisory Committee Co-Chair 
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CO-CHAIR CERTIFICATION

I hereby certify the accuracy of this record of the proceedings of the Joint CFTC-SEC Advisory 

Committee on Emerging Regulatory Issues. 

/s/ Mary L. Schapiro November 7, 2010 

_______________________________________ ________________________ 

Mary L. Schapiro, SEC Chairman Date 

Advisory Committee Co-Chair