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Avoid Knee-Jerk Regulation to Flash Crash: LSE CEO

Governments and market regulators should resist public and political pressure to introduce knee-jerk regulation in the wake of the May 6 flash crash, London Stock Exchange CEO Xavier Rolet told CNBC Tuesday.

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Experts are still struggling to find out what caused the Dow Jones Industrial Average's near 700-point drop in minutes. But finding a way to stop it happening again could take "very careful analysis," Rolet said.

"What has happened to some fine upstanding companies, that all of a sudden saw their capitalization return to zero, points the way towards a much finer, much more disciplined, more analytical view of regulatory changes before they are implemented," he said.

The Commodity Futures Trading Commission and U.S. Securities and Exchange Commission are closely working together in the hope of finding a solution, according to Reuters. But recent unilateral action from the German government banning naked short-selling - the sale of certain assets that aren't owned by the seller - suggests there is strong political will to control market gyrations.

"Unfortunately, this type of unilateral decision is likely to have an effect, an impact, which is likely to be quite the opposite of what was intended," Rolet said.

He expects that a global framework of financial governance will eventually be established, but it will be a "slow and difficult process."

- Watch the full interview with Xavier Rolet above.

"I think regulators and government have to feel their way through this process and this sort of unilateral measure and their unintended effects are likely to be a lesson for the future," he said.

If European governments work together with international governments and regulators then a lot can be achieved, according to Rolet.

Rolet also thinks that Europe's stock markets can catch up to their U.S. peers in terms of liquidity.

"There's actually a lot of hope that European equity markets can become substantially more liquid, perhaps by a factor of as much as one for ten," he said.