Make us your home page
Instagram

SEC to implement 'circuit breakers' when stock prices dive

WASHINGTON — The Securities and Exchange Commission announced new measures Tuesday aimed at avoiding a repeat of the market swoon earlier this month, saying that it would propose that trading in any given stock would be paused if a stock dives more than 10 percent in five minutes.

The rules would apply across all trading venues. The halt in trading would last five minutes.

The proposal, which will be implemented in the next few weeks, is a response to several lessons of May 6, when the Dow Jones Industrial Average plummeted nearly 1,000 points in a matter of minutes. Existing triggers, or "circuit breakers," that would pause trading were outdated and did not go into effect. Meanwhile, different rules governing when to stop trading led to irregularities across the market.

"We continue to believe that the market disruption of May 6 was exacerbated by disparate trading rules and conventions across the exchanges," SEC Chairwoman Mary Schapiro said. "I believe that circuit breakers for individual securities across the exchanges would help to limit significant volatility."

The SEC and the Commodity Futures Trading Commission also released a report Tuesday citing six theories on what may have caused the market's sudden gyrations, saying it was likely that speculative trades linked to the direction of the overall market helped fuel the declines.

The regulators' report sheds little light on which firms, traders and events caused the volatility. But the report underscores how the fate of the stock market today is guided largely by speculators making bets on far-flung exchanges that influence the prices of blue-chip stocks.

The surge of volatility on May 6 exposed flaws in the electronic guts of the trading system and highlighted the market's vulnerability to high-speed, computer-driven traders making decisions about what to buy and sell based on mathematical formulas.

A full account of what happened May 6 may take many months to complete, as it did after the spectacular market crash of Oct. 19, 1987, also known as Black Monday. While today's markets are virtually all electronic, making collection of data easier, the amount of data is far larger. In 1987, about 600 million shares were traded daily. On May 6, 19.5 billion shares were exchanged, comprising 66 million trades.

The SEC is looking at several other practices.

The agency is contemplating how to reduce the use of "stub" quotes. These quotes allow market-makers — firms that agree to buy and sell shares to ensure that investors can make trades — to technically stay active in the market as is required by some exchanges.

But the "stub" quotes are usually far below or above what the market is asking and are almost never executed. On May 6, trades were executed at "stub" prices. Subsequently, exchanges have canceled those trades.

The agency will also look at whether short-term trading strategies, such as those that use computer analysis to make split-second decisions, need to be curtailed, as well as proposals to make it easier to capture and analyze trading patterns across markets.

SEC to implement 'circuit breakers' when stock prices dive 05/18/10 [Last modified: Tuesday, May 18, 2010 9:38pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Washington Post.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. Carrollwood fitness center employs scientific protocol to help clients

    Business

    In 2005, Al Roach and Virginia Phillips, husband and wife, opened 20 Minutes to Fitness in Lakewood Ranch, and last month they opened the doors to their new location in Carrollwood.

    Preston Fisher, a personal fitness coach at 20 Minutes To Fitness, stands with an iPad while general manager/owner Angela Begin conducts an equipment demonstration. The iPad is used to track each client's information and progress. I also included one shot of just the equipment. The center recently opened in Carrollwood. Photo by Danielle Hauser.
  2. Olive Tree branches out to Wesley Chapel

    Business

    WESLEY CHAPEL — When it came time to open a second location of The Olive Tree, owners John and Donna Woelfel, decided that Wesley Chapel was the perfect place.

    The Olive Tree expands its offerings of "ultra premium?€ extra virgin olive oils (EVOO) to a second location in Wesley Chapel. Photo by Danielle Hauser.
  3. Massachusetts firm buys Tampa's Element apartment tower

    Real Estate

    TAMPA — Downtown Tampa's Element apartment tower sold this week to a Massachusetts-based real estate investment company that plans to upgrade the skyscraper's amenities and operate it long-term as a rental community.

    The Element apartment high-rise at 808 N Franklin St. in downtown Tampa has been sold to a Northland Investment Corp., a Massachusetts-based real estate investment company. JIM DAMASKE  |  Times
  4. New York town approves Legoland proposal

    News

    GOSHEN, N.Y. — New York is one step closer to a Lego dreamland. Goshen, a small town about fifty miles northwest of the Big Apple, has approved the site plan for a $500 million Legoland amusement park.

    A small New York town, Goshen approved the site plan for a $500 million Legoland amusement park. Legoland Florida is in Winter Haven. [Times file  photo]
  5. Jordan Park to get $20 million makeover and new senior housing

    Real Estate

    By WAVENEY ANN MOORE

    Times Staff Writer

    ST. PETERSBURG —The St. Petersburg Housing Authority, which bought back the troubled Jordan Park public housing complex this year, plans to spend about $20 million to improve the 237-unit property and construct a new three-story building for …

    Jordan Park, the historic public housing complex, is back in the hands of the St. Petersburg Housing Authority. The agency is working to improve the 237-unit complex. But the latest plan to build a new three-story building for seniors will mean 31 families have to find new homes. [LARA CERRI   |   Tampa Bay Times]