New SEC limit up/limit down stock trading rules

Discussion in 'Wall St. News' started by ChkitOut, Apr 6, 2011.

  1. Not sure if this has been posted yet.

    Exchanges Revamp U.S. Curbs to Help Prevent Stock Trading Halts

    Concern that halting stocks to limit price volatility did more harm than good spurred the biggest U.S. exchanges to propose modifying the program.

    They backed a plan, known as limit-up/limit down, that prevents prices from moving beyond specified bands based on a stock’s average level during the previous five minutes. On Feb. 18, advisers to the Securities and Exchange Commission and the Commodity Futures Trading Commission recommended adopting the technique in lieu of immediately halting shares. The SEC announced the proposal yesterday.

    Exchanges implemented single-stock circuit breakers after the 20-minute rout on May 6 erased $862 billion from the value of U.S. shares before prices rebounded. The current system halts Standard & Poor’s 500 Index and Russell 1000 Index (RIY) companies and more than 300 exchange-traded funds for five minutes whenever they rise or fall at least 10 percent in five minutes. Exchanges and the Financial Industry Regulatory Authority want price bands to replace this mechanism.

    “This addresses issues that occurred related to May 6 in terms of the deviation of prices and fast price movements,” said Joseph Marinaro, chief business development and strategy officer at New York-based Surge Trading Group Inc., an electronic market maker in equities. “It provides more stability to retail investors.”
    Different Thresholds

    For companies already covered by the circuit breakers adopted last year, trades wouldn’t be able to occur 5 percent higher or lower than the average price over the prior five minutes, the SEC said. For all other securities, the band would be set at 10 percent. Wider collars would apply for shares trading below $1. The thresholds would be doubled during in the minutes surrounding the open and close of U.S. exchanges.

    If a stock price rises or falls to the threshold and trades are “unable to occur within the price band for more than 15 seconds,” a five-minute pause will be imposed, according to the SEC statement. The halt will give investors time to respond to “fundamental price moves” driven by news about companies, the SEC said.

    The proposal would affect trading on all exchanges including those run by NYSE Euronext (NYX), Nasdaq OMX Group Inc. (NDAQ), Bats Global Markets and Direct Edge Holdings LLC, as well as private venues such as dark pools and brokerages that execute orders within their own walls.
  2. Tsing Tao

    Tsing Tao

    just like the sec to focus on the symptoms and ignore the ailment.