The Securities and Exchange Commission in the US has announced that it is to launch an investigation into the massive fall in US markets yesterday that saw almost 1,000 points wiped off the Dow Jones.

The SEC and the Commodity Futures Trading Commission (CFTC) said in a statement that they are working with the other financial regulators, as well as the exchanges, “to review the unusual trading activity that took place”.

“We are also working with the exchanges to take appropriate steps to protect investors pursuant to market rules.

“We will make public the findings of our review along with recommendations for appropriate action,” the SEC and CFTC added.

At one stage yesterday the Dow Jones plunged by 998 points, or more than 9pc, which is its biggest drop ever experienced during a single trading day, bigger even than that weathered during the crash of 1987. However, the Dow recovered swiftly, reducing its losses to around 300 points.

Reports last night suggested that a so-called ‘fat finger’ trade, whereby a single trader entered an order incorrectly and triggered computerised ‘sell’ orders across the market, was the main reason for the Dow’s sudden drop yesterday.

According to reports, a dealer at a large financial institution had mistaken billions for millions when keying in a transaction, which resulted in about US$1tr being wiped off the value of US shares for a short time.

However, it has also been suggested that the apparently erroneous trade was not such an honest mistake and could have been an attempt to profit illegally from the turmoil created.

Yesterday’s falls on Wall Street spread to Asian markets overnight and across to European markets this morning.