Reuters: Regulatory News: SEC approves plan to ease volatility in US stocks

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SEC approves plan to ease volatility in US stocks Jun 1st 2012, 16:00 Fri Jun 1, 2012 12:00pm EDT * "Limit up-limit down" to replace single-stock circuit breakers * Threshold for triggering market-wide trading halt lowered * Plan to be put in place by exchanges, FINRA, by Feb. 4 By John McCrank June 1 (Reuters) - U.S. securities regulators have approved a one-year pilot for a plan designed to protect equity markets from volatile price swings in the wake of the May 6, 2010 "flash crash." The Securities and Exchange Commission said on Friday that a "limit up-limit down" initiative, which prevents trades in U.S.-listed stocks outside of a specified range based on recent prices, will replace existing single-stock circuit breakers. The existing circuit breakers halt trading in hundreds of stocks and exchange-traded funds when their price moves 10 percent or more during a rolling five-minute period. The plan also updates existing market-wide circuit breakers that, when triggered, halt trading in all exchange-listed securities on U.S. markets. The SEC has been working closely with the exchanges and the Financial Industry Regulatory Authority (FINRA) to come up with market structural fixes to prevent a repeat of the May 6 flash crash, which temporarily wiped out about $1 trillion in paper value in the stock market. "The initiatives we approved are the product of a significant effort to devise a sophisticated, yet workable and effective way to protect our markets from excessive volatility," SEC Chairman Mary Schapiro said in a statement. "In today's complex electronic markets, we need an automated and appropriately calibrated way to pause or limit trading if prices move too far too fast." The existing market-wide circuit breakers were adopted in October 1988 and have been triggered only once, in 1997. The changes lower the percentage-decline threshold for triggering a market-wide trading halt and shorten the amount of time that trading is halted. The changes are to be in place by February 4. The SEC said that it approved the proposals for a one-year pilot period, during which time U.S. exchanges, FINRA, and the SEC will assess their effectiveness. Link this Share this Digg this Email Reprints

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