FINRA and Various Exchanges Propose Revised Circuit Breakers Addressing Market Volatility

September 27, 2011

The SEC announced that the national securities exchanges and the Financial Industry Regulatory Authority (FINRA) are filing proposals to revise existing market-wide circuit breakers that are designed to address extraordinary volatility across the securities markets.  When triggered, these circuit breakers halt trading in all exchange-listed securities throughout the U.S. markets.

The proposals would update the market-wide circuit breakers by among other things reducing the market decline percentage thresholds necessary to trigger a circuit breaker, shortening the duration of the resulting trading halts, and changing the reference index used to measure a market decline.

If approved, the new market-wide circuit breaker rules would replace the existing market-wide circuit breakers, which were originally adopted in October 1988 and have only been triggered on one day in 1997.

The SEC will seek comment on the proposed rule changes, which are subject to SEC’s approval following a 21-day public comment period.

  • Approving rules that require the exchanges and FINRA to pause trading in certain individual securities if the price moves 10 percent or more in a five-minute period.  This pilot program applies to all exchange-listed stocks and exchange-traded products.
  • Approving new exchange and FINRA rules clarifying up front how and when erroneous trades would be broken.
  • Approving new rules of the exchanges and FINRA to strengthen the minimum quoting standards for market makers and effectively prohibit “stub quotes” in the U.S. equity markets.

The SEC also is considering a proposal by the exchanges and FINRA to establish a “limit up-limit down” mechanism to address extraordinary market volatility in individual securities.

In addition, the SEC has:

  • Adopted a rule requiring broker-dealers to have risk controls in place before providing their customers with access to the market.
  • Adopted a rule establishing a large trader reporting system to enhance the SEC’s ability to identify large market participants and more effectively collect information on their trading activity.
  • Proposed a rule to establish a consolidated audit trail system to better track orders and trades in securities across the national market system.

Please click here to access this press release. 


Categories

Investment Advisers, Investment Companies, Regulatory