(Bloomberg) — BlackRock Inc., the world’s biggest asset manager, has its own remedy for days of extraordinary volatility in the U.S. equity market: Shut it down.
Among the fund company’s suggestions: The entire $23 trillion market should automatically come to a halt if a certain number of shares stop trading, giving traders time to regroup on a wild day, according to BlackRock.
Tweaking the rules on halts and making all stock openings electronic are among other ideas in a paper published Wednesday by the firm.
BlackRock’s proposals come as money managers talk with market-makers and stock exchanges to identify what happened amid the market turmoil on Aug. 24 and how to prevent a repeat.
Trading that day was disrupted by delayed openings, more than 1,000 halts, and wild price swings. The fund company believes that many of its recommendations, published Wednesday, can be adopted with a minimum of fuss.
“They’re all very doable changes without a whole lot of magic,” Barbara Novick, co-vice chairman of BlackRock, said in an interview. “I don’t think they’re going to be contentious. I don’t think they’re going to be difficult.”
BlackRock is among several asset managers, including Vanguard Group Inc. and State Street Corp., that in recent weeks held discussions with market participants about the events of Aug. 24, people with direct knowledge of the matter told Bloomberg News.
The talks highlighted factors including the use of so-called stop orders by investors, the role of market makers in pricing ETF shares, and narrow price bands used by the NYSE Arca exchange for opening securities, said the people.
The issues were so widespread that about one in five exchange-traded products were halted during that day, according to BlackRock.
The talks between ETF issuers and traders and exchanges looked at the role of market makers in pricing ETF shares when some underlying stocks weren’t open or were seeing extreme price moves. Ways to better calculate an ETF’s share price amid turmoil have been discussed.
The BlackRock paper said that a quarter of the stocks in the Standard & Poor’s 500 Index hadn’t opened by 9:40 a.m. on Aug. 24, 10 minutes after the start of trading.
BlackRock’s Novick suggested that in situations where a chunk of the stocks that make up the main index are closed, halting the entire market might be a good idea.
The wildest fluctuations on a bad day could be limited if a circuit breaker stopped all trading, she said.
“In that scenario, you’d rather have had a market-wide halt to get everything back together than not have one,” said Novick.
Wednesday’s paper says that further work is needed to determine the number of individual stock halts that would automatically trigger such a pause.
BlackRock’s prescription conflicts with anything offered so far by regulators.
Speaking last week at an industry conference in Washington, Stephen Luparello of the U.S. Securities and Exchange Commission said the conditions on Aug. 24 didn’t justify a market-wide halt.
“People were not pulling out of the market because they were uncertain they were getting real-time information,” Luparello, the SEC’s director of trading and markets, told the Security Traders Association event. “The extent to which a pause to allow people to get a greater level of certainty around data — that need was, I don’t think, there. So in that sense it was good we averted having a market-wide halt.”
The effort to publicly address some of the issues that plagued the market has been welcomed by market participants.
“Blackrock’s leadership in helping avoid that kind of exchange-traded products volatility, especially around liquidity provision, is critical,” said Bill Harts, chief executive officer of Modern Markets Initiative, an industry group for high-speed traders. “The paper imparts a solid understanding of market structure and the role of principal trading firms in ETP markets.”