US Exchanges to Halt Big Drops in Individual Stocks to Avoid Another Crash

Tuesday, 11 May 2010 11:53 AM

 

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Adopting new, U.S. marketwide circuit breakers to halt precipitous drops in individual stocks is "a done deal," a source said Tuesday, five days after a severe market plunge rattled investors and perplexed regulators.

The circuit breakers would likely trip when individual stocks fall by a set amount in a set timeframe.

The Securities and Exchange Commission hosted exchange heads at a meeting Monday, and said afterward the parties agreed to a framework that would strengthen circuit breakers.

The report comes as senior executives from NYSE Euronext, Nasdaq OMX Group and CME Group will testify to a congressional panel on Tuesday on last week's shock sell-off in the stock markets, according to a witness list obtained by Reuters.

Slated to testify are NYSE Euronext Chief Operating Officer Lawrence Leibowitz, CME Executive Chairman Terrence Duffy and Nasdaq Transaction Services Executive Vice President Eric Noll, according to the list.

Also appearing will be U.S. Securities and Exchange Commission Chairman Mary Schapiro and U.S. Commodity Futures Trading Commission Chairman Gary Gensler, it said.

Regulators still have not pinpointed the exact cause of last week's 20-minute market roller coaster, when many stocks usually regarded as safe dropped precipitously for several minutes before recovering most of their losses.

Currently, if the market falls more than 10 percent in a day before 2 p.m. Eastern time, a circuit breaker is triggered and shuts the market down for one hour. If the market falls more than 20 percent after 2.30 p.m., the market shuts for the rest of the day.

Both the Dow Jones Industrial Average and Standard & Poor's 500 index never reached the crucial trigger point on May 6. The Dow fell as much as 9.2 percent, or nearly 1,000 points, and the S&P was off as much as 8.6 percent during the latter half of Thursday's trading day.

U.S. Treasury Secretary Timothy Geithner urged a speedy response to last week's events when he met with the exchange heads on Monday afternoon.

Five days after the market plunge and quick rebound, regulators are still scrambling for answers, multiple sources familiar with the investigation said.

Stock exchanges have canceled trades on more than 200 largely NYSE-listed companies, upsetting investors in other companies who sold their stock at the bottom.

One prevailing theory is that the sharp fragmentation of the U.S. stock marketplace and the accompanying patchwork of circuit breakers and safeguards exacerbated the market swoon.

That market fragmentation is also slowing down regulators' ability to piece together what happened, two sources familiar with the matter said on Monday.

The NYSE introduced a trading curb on its floor Thursday that forced most trading to all-electronic exchanges such as the Nasdaq Stock Market and NYSE Euronext's electronic Arca venue, which did not have similar curbs — a lack of uniformity seen as having worsened the wider market's drop.

Now, regulators and the industry appear to be eyeing something like NYSE's system as a template for the whole marketplace.

The NYSE and Nasdaq, the two U.S. exchanges that list stocks, want to handle the reopening of markets following any future trading halts due to a circuit breaker, sources said.

© 2014 Thomson/Reuters. All rights reserved.

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