Leading US stock exchanges have lodged filings with the Securities and Exchange Commission (SEC) to extend the pilot period for market-wide circuit breakers introduced in the aftermath of the 6 May flash crash.
The pilot scheme – which imposes a halt on trading in an individual stock for five minutes in the event of it falling or rising 10% or more in the previous five-minute period – had been scheduled to terminate on 10 December. But exchanges including the New York Stock Exchange (NYSE), Nasdaq, Direct Edge and BATS, have requested an extension to 11 April 2011.
According to a NYSE notice of filing posted on the SEC's website on 9 December, the exchange filed a proposed rule change on 7 December to permit the extension on grounds it “would allow the pilot to continue to operate without interruption while the exchange, other national securities exchanges and the commission further assess the effect of the pilot on the marketplace or whether other initiatives should be adopted in lieu of the current pilot”. The filing added that the SEC had waived the 30-day operative delay that typically applies to any rule change proposed by a self-regulatory organisation, due to the potential for “investor confusion” that might be caused by an interruption to the pilot. As such, the SEC designated the delay request to be “operative upon filing”.
The market-wide circuit breakers were introduced in June after trading in affected stocks continued on other US equity trading venues after the NYSE adopted its slow mode of trading to correct an imbalance between sell and buy orders. Originally implemented across all venues for S&P 500 stocks, the use of circuit breakers was extended in September to include all constituents of the Russell 1000 index and a number of exchange-traded funds. The SEC has also been canvassing industry opinion on the possibility of moving to a ”limit up/limit down' approach which would prevent trades taking place outside specified price parameters, but allow trading to continue within those parameters.
On May 6, around 20,000 trades across 300-plus securities were executed within a 20-minute period at prices more than 60% away from market levels before prices began to plummet at 14.40 Eastern standard time. Many stocks experienced price falls of up to 15%, however most of the losses were reversed by the end of trading.