Equities exchanges plan to bolster marketwide circuit breakers by proposing a two-pronged approach. The plan is to introduce a stock-by-stock circuit breaker and update the existing ones for the Dow Jones Industrial Average by reducing the loss needed to trigger a halt. The new scheme will also add monitoring of the Standard & Poor’s 500 index.
The proposals come on the heels of the market freefall on May 6, when the Dow plummeted nearly 1,000 points in less than half an hour for reasons yet unknown. Following the event, the SEC asked exchanges to prepare a joint recommendation outlining the specific type of circuit breakers they would like to see introduced. The SEC is expected to mandate immediate implementation of the new tools after they are approved.
The stock-by-stock circuit breaker will require exchanges to monitor individual securities. If a security’s price falls a set percentage over a certain period of time, trading in the stock will be stopped. It is unclear whether the exchanges will propose that this percentage be based on the previous day’s closing price or on a rolling basis, such as monitoring for a price decline of 10 percent in ten minutes.
— Wall Street Letter
