by Calculated Risk on 5/06/2010 09:20:00 PM

From Graham Bowley at the NY Times: Markets Plunge, Then Stage a Rebound

[I]n Washington a team of Treasury officials began combing through market tapes trying to figure out what was going on. By the evening they still had not gotten to the bottom of it, but they discovered some aberrations — market blips — in trading coming out of Chicago.
...
As of about 6 p.m., all the officials knew was that there had been what one official called “a huge, anomalous, unexplained surge in selling, it looks like in Chicago, at about 2:45.” The source remained unknown, but it had apparently set off algorithmic trading strategies, which in turn rippled across everything, pushing trading out of whack and feeding on itself — until it started to reverse.

Federal officials fielded rumors ... But they did not know the truth.

What happens to the day’s market losers will depend on what the cause was and whether it can be identified. That is a question for the S.E.C.

And from Scott Patterson at the WSJ: Did Shutdowns Make Plunge Worse?

A number of high-frequency firms stopped trading Thursday in the midst of the market plunge, possibly adding to the market's unprecedented selloff.

Tradebot Systems Inc., a large high-frequency firm based in Kansas City, Mo., closed down its computer trading systems when the Dow Jones Industrial Average had dropped about 500 points ... Tradeworx Inc., a N.J. firm that operates a high-frequency fund, also stopped trading during the market turmoil ...

No answers yet - just rumors.