"...also under consideration is some kind of "circuit breaker" for individual stocks, where, for example, a stock down 10 percent might hit certain "circuit breakers" like closing for a few minutes. " http://www.cnbc.com/id/26940795
Aaah, the barn door is being closed, after the horses and the barn have burned down! Brilliant, outstanding, stupendous! Capital idea, Lovey!
All regulations include... 1) Banned short selling of your exchange listed stock. 2) Price limits (Down Only) for your exchange listed stock. 3) Sarbanes-Oxley MTM, or standard GAAP accounting. (Only 1 declaration please) 4) Unlimited trips to the Discount Window. (Sorry, no doggie bags) Ask your Congressman about daily specials, including our famous pork earmarks!
This already exists, they're called 'trade halts'. If the market in a particular stock has a lopsided sell side vs buy side the stock can be halted. Why don't they just use this? There will be ways around this new idea. If a stock is down 22%, simply make the closing print 100 shares 3% higher.
These rules always benefit the big trader (i.e. institutions, mutual funds etc..) at the expense of the smaller trader. If you think about it, it will make people less likely to step up and BUY. Who wants to hold something that might stop trading? Where do they find these knukleheads?
I think they're just going to halt short selling, not trading entirely. Here's the full story: DJN: WSJ(10/11) Exchanges Discuss Circuit Breaker (Dow Jones 10/10 19:34:11) (From THE WALL STREET JOURNAL) By Kara Scannell WASHINGTON -- U.S. stock exchanges are working on a temporary circuit breaker that would stop short selling in a stock after a big drop in price, according to people briefed on the proposal. The circuit breaker, which would likely be issued by NYSE Euronext and Nasdaq, is still under discussion. The Securities and Exchange Commission in most cases has to sign off on changes to exchange rules. The SEC could also write its own rule. Under the current proposal, the circuit breaker would kick in if a stock closed 20% lower than its closing price on the previous day. For three subsequent days, short selling in that stock would be prohibited. The prohibition would not apply to people who are engaging in "bona fide" hedging activities, people briefed on the plan say. It's not clear how bona-fide hedging would be defined. Representatives of NYSE Euronext, Nasdaq and the SEC declined to comment. The proposal comes amid extreme volatility in the market. Some executives have blamed short sellers for sharp drops in financial and other stocks. The SEC's recent temporary ban on short sales of financial stocks expired this past week. It was announced without warning and just hours before it went into effect. In a short sale a trader sells borrowed stock in hopes of buying it back at a lower price. Short sales are also used as a hedging strategy to mitigate risk. Some market participants are concerned that the exceptions to the circuit-breaker could be defined too broadly, defeating its purpose. Others say a steep slide approaching 20% at the end of one day could prompt a lot of short selling in the final minutes by traders worried that they wouldn't be able to take new positions for three days. The SEC has been under pressure from some corporate chieftains, including John Mack, head of Morgan Stanley, to respond to sliding stock prices. Shares of Morgan Stanley were down more than 35% midday Friday. The hedge-fund lobby has been critical of many of the SEC's recent moves to restrict short selling, saying the trading strategy adds liquidity to the market and helps offset risk. Some SEC officials say the dizzying pace of emergency rules has added to market uncertainty. They would prefer the agency's usual process of seeking comment from the public before making rules changes.
This really opens up a can of worms. When a stock goes down 20%, what if there is short selling that takes place under (even say 1% under) that price? Do those trades get busted? I can just imagine shorting a stock, then covering thinking I have a profit, only to find out (after it continues to drop!) that the short occurred under the magic #. Might not be a problem, though...I would think it would be pretty easy for brokers to write software that disallows short selling under a certain amount...they'll probably disallow shorting for 10-15% drops just to be safe!
After rereading this, it appears that a stock dropping 20% won't have short sale restrictions until the following day. So once it drops 20%, you can still short that day. That's a little better than I previously thought.