SEC proposes new trading rules
Major exchanges to impose stock 'circuit breakers' to prevent plunges under new SEC rules
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On Tuesday May 18, 2010, 5:44 pm
WASHINGTON (AP) -- U.S. stock exchanges would briefly halt trading of some stocks that have big prices swings under new trading rules aimed at avoiding market plunges and proposed by federal regulators.
The rules would take effect in mid-June under a six-month pilot program agreed to by major exchanges and the Securities and Exchange Commission. The SEC announced them Tuesday and put them forward for public comment, in a response to the stunning plunge of May 6.
Under the plan, trading of any Standard & Poor's 500 stock that rises or falls 10 percent or more would be halted for five minutes. These rules, known as "circuit breakers," would be applied if the price swing occurs between 9:45 a.m. and 3:35 p.m. Eastern time. That's almost the entire trading day.
NEW YORK (AP) -- U.S. stock exchanges would briefly halt trading of some stocks that have big prices swings under new trading rules aimed at avoiding market plunges, according to two people familiar with the plan.
The rules are expected to begin in mid-June under a six-month pilot program agreed to by exchanges and regulators, the people said. They spoke on condition of anonymity because the plan has not been made public.
It was not known when an announcement would be made.
Under the plan, trading of any Standard & Poor's 500 stock that rises or falls 10 percent or more would be halted for five minutes. These rules, known as "circuit breakers," would be applied if the price swing occurs between 9:45 a.m. and 3:35 p.m. Eastern time. That's almost the entire trading day.
The rules are intended to prevent a repeat of the May 6 market plunge in which the Dow Jones industrials fell to a loss of almost 1,000 points in less than 30 minutes. The pilot program is scheduled to end Dec. 10. Regulators and the exchanges would then decide whether to widen the program to include other stocks, according to the people.
Federal investigators on Tuesday were submitting preliminary findings about the plunge to an advisory panel, Securities and Exchange Commission Chairman Mary Schapiro told a gathering of financial analysts. She said the exchanges were also expected to propose new trading rules.
Schapiro appeared from Washington by video link rather than traveling to speak in Boston to the Chartered Financial Analysts Institute's convention, citing the demands of an investigation she said is "keeping me up at all hours of the morning."
She said her agency is "looking at a number of issues we think can be remediated quickly even before we understand necessarily what the exact cause of the crash was."
Regardless of the cause, there's no guarantee that stock circuit breakers will help stop severe market drops, independent market analyst Edward Yardeni said.
"The only way we'll find out is if we have another plunge," Yardeni said. "If they kick in and stabilize the situation, then fine. If not, it's back to the drawing board."
The SEC already has rules requiring market-wide halts in trading if the Dow falls 10 percent, 20 percent or 30 percent. It's possible those rules, also known as circuit breakers, will be re-examined in light of the May 6 plunge.
The May 6 drop briefly wiped out more than $1 trillion in the market value of stocks. The Dow later recovered somewhat to finish the day down 347 points.
The plunge stunned Wall Street and Washington, and prompted calls for changes in securities market rules and procedures. Most of the 50 or so U.S. exchanges regulate themselves and design their own tools for slowing or halting trading.
During the plunge, the New York Stock Exchange slowed trading according to its rules, but the orders that couldn't be executed automatically migrated in a torrent to electronic exchanges, industry officials said. |
