The Securities and Exchange Commission (SEC) approved new rules submitted by the national securities exchanges and FINRA on Friday, September 10. The rules expand a recently-adopted circuit breaker program to include all stocks in the Russell 1000 Index and certain exchange-traded funds.
The SEC also approved new exchange and FINRA rules that clarify the process for breaking erroneous trades, it said in a press release.
The circuit breaker pilot program was approved in June in response to the market disruption of May 6.
If a security experiences a 10% percent price change over a five-minute period, trading in it is paused for five minutes.
“The pause gives the markets an opportunity to attract new trading interest in an affected stock, establish a reasonable market price, and resume trading in a fair and orderly fashion,” the SEC said in a statement.
The circuit breaker program is in effect through December 10. The SEC anticipates that the exchanges and FINRA will begin implementing the expanded circuit breaker program early in the week of September 13-17.
A list of the securities included in the Russell 1000 Index, which was rebalanced on June 25, is available on the Russell website.
The eight-page list of exchange-traded products included in the pilot is available on the SEC’s website. It includes PowerShares QQQ, SPDR Gold Trust, iShares MSCI BRIC Index Fund and other popular ETFs.
“These circuit breakers and this more objective guidance on breaking erroneous trades will help our markets retain the confidence of investors and companies,” said SEC Chairman Mary L. Schapiro in a press release. “We have worked quickly with the exchanges to take these steps, and we will continue to be very focused on addressing weaknesses exposed on May 6.”
For stocks subject to the circuit breaker program, trades will be broken at specified levels depending on the stock price:
- – For stocks priced $25 or less, trades will be broken if the trades are at least 10% away from the circuit breaker trigger price.
- – For stocks priced more than $25 to $50, trades will be broken if they are 5% away from the circuit breaker trigger price.
- – For stocks priced more than $50, the trades will be broken if they are 3% away from the circuit breaker trigger price.
Where circuit breakers are not applicable, the exchanges and FINRA will break trades at specified levels for events involving multiple stocks depending on how many stocks are involved, the SEC says.
According to the SEC, on May 6, the markets only broke trades that were more than 60% away from the reference price in a process that was not transparent to market participants.
SEC staff is also considering whether market makers should be subject to more meaningful obligations to promote fair and orderly markets; working with the exchanges to prohibit the use by market makers of “stub” quotes that are not intended to indicate actual trading interest; and studying the impact of multiple trading protocols at the exchanges, including the use of trading pauses and self-help rules.