SEC Implements Stock-By-Stock Circuit Breakers

June 17, 2010

The SEC, focused on solving the issues that made the ‘flash crash’ possible, implemented new rules that will put a stop to trading on various exchanges if and when things get crazy again.

The Securities and Exchange Commission, looking to avoid a repeat of the flash crash, approved new rules that will require various exchanges to pause trading in individual stocks if their prices move 10 percent or more in a five-minute period.

Initially, the new rules will apply to all stocks listed on the S&P 500 Index during a trial period that will end on Dec. 10. But the SEC plans to expand the scope of the new circuit breakers to encompass ETFs “as soon as practicable.”

The new rules, which will pause trading uniformly across the major
exchanges, are designed to keep so-called broken trades on one exchange from triggering a cascade effect of irrational pricing on other trading venues. The impetus for the new stock-by-stock circuit breakers came on May 6, “when a number of stocks and ETFs were executed at clearly irrational prices,” said SEC Chairman Mary Schapiro in a press release.

Schapiro has been outspoken about the need for the exchanges, such as the New York Stock Exchange, Nasdaq and others, as well as financial regulators to bring enforcement and auditing practices up to speed with the rapid pace of development in the private sector.

The exchanges, along with the Financial Industry Regulatory Authority (FINRA), began implementing the new rules last Friday.


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