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SEC Proposes Stock-by-Stock Circuit Breaker Rules
May 21, 2010
Responding to the May 6 "Flash Crash," the SEC has announced that the national exchanges and FINRA are filing proposed rules under which trading could be paused for individual stocks if the price moves 10 percent or more in a five minute period. According to the SEC's announcement, this circuit breaker proposal reflects "a consensus that was achieved among the exchanges and FINRA after SEC Chairman Mary Schapiro convened a meeting of exchange leaders and FINRA at the SEC early last week," within days after the market dropped significantly and after approximately 30 S&P 500 Index stocks fell at least 10 in a five minute period. Although the specific language of the rule proposals is not yet available, the Commission characterized them as follows:
Under the proposed rules, which are subject to Commission approval following the completion of the comment period, trading in a stock would pause across U.S. equity markets for a five-minute period in the event that the stock experiences a 10 percent change in price over the preceding five minutes. The pause would give the markets the opportunity to attract new trading interest in an affected stock, establish a reasonable market price, and resume trading in a fair and orderly fashion. Initially, these new rules would be in effect on a pilot basis through Dec. 10, 2010. The markets will use the pilot period to make appropriate adjustments to the parameters or operation of the circuit breaker as warranted based on their experience, and to expand the scope to securities beyond the S&P 500 (including ETFs) as soon as practicable.
The proposed rules will be published on the SEC's website, and the comment period will be limited to ten days. During the pilot period, the Commission's staff will continue to examine the causes of the May 6 "Flash Crash," and consider whether additional, more permanent, rules are necessary to prevent acute volatility incidents in the future.
The full text of the Commission's announcement is available at: http://www.sec.gov/news/press/2010/2010-80.htm
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