Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Tuesday, September 27, 2011

Updated Market-Wide Circuit Breaker Proposals to Address Extraordinary Market Volatility

The SEC announced that the national securities exchanges and the FINRA are filing proposals to revise existing market-wide circuit breakers that are designed to address extraordinary volatility across the securities markets. When triggered, these circuit breakers halt trading in all exchange-listed securities throughout the U.S. markets.  The proposals being filed today would update the market-wide circuit breakers by among other things reducing the market decline percentage thresholds necessary to trigger a circuit breaker, shortening the duration of the resulting trading halts, and changing the reference index used to measure a market decline.

If approved by the Commission, the new market-wide circuit breaker rules would replace the existing market-wide circuit breakers, which were originally adopted in October 1988.  The proposals would revise the existing market-wide circuit breakers by:

Reducing the market decline percentage thresholds necessary to trigger a circuit breaker from 10, 20, and 30 percent to 7, 13, and 20 percent from the prior day’s closing price.
 
Shortening the duration of the resulting trading halts that do not close the market for the day from 30, 60, or 120 minutes to 15 minutes.
 
Simplifying the structure of the circuit breakers so that rather than six there are only two relevant trigger time periods — those that occur before 3:25 p.m. and those that occur on or after 3:25 p.m.
 
Using the broader S&P 500 Index as the pricing reference to measure a market decline, rather than the Dow Jones Industrial Average.
 
Providing that the trigger thresholds are to be recalculated daily rather than quarterly.

http://lawprofessors.typepad.com/securities/2011/09/updated-market-wide-circuit-breaker-proposals-to-address-extraordinary-market-volatility.html

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