SEC looks to Equity Committee to refine circuit-breaker rules

Mary Jo White asked equity committee to consider refinements to circuit breakers, which could exacerbate volatility if triggered.

The Securities Exchange Commission (SEC) has asked members of the Equity Market Structure Committee to refine rules on market-wide circuit breakers.

SEC chair, Mary Jo White, said the challenge with implementing market-wide circuit breakers is that they must be optimised for a variety of markets and volatility events.

Addressing the committee, White suggested the group should look into whether widening trading bands or using futures market data could cause issues for other market conditions.

She asked: “How can market-wide circuit breakers be optimised, given the range of volatility events that can occur in our modern markets?”

As the speed of trading has increased dramatically in recent years, the effects of “sudden liquidity imbalances” and price movements can be severe, she added.

Several changes to circuit-breakers were implemented following the flash crash on 6 May 2010, including market decline thresholds being lowered and the trading halt being shortened.

“We have seen this many times, both market-wide and at the individual stock level, and this type of volatility has occurred in non-equity markets as well,” White said, recalling the events of flash crashes in 2010 and August 24 2015.

White said the committee is to consider further recommendations, as the crash in August last year reflected concerns that “a market-wide halt in trading would have exacerbated that particular volatility event.”