By Cydney Posner

FINRA and the national securities exchanges are proposing for comment new circuit-breaker rules in response to the market disruption of May 6.

The proposals are being made, in consultation with the SEC staff, to provide for uniform market-wide trading pause standards for individual securities in the S&P 500 that experience rapid price movement. The rule proposals are designed to limit significant volatility, increase market transparency, bolster investor protection and bring uniformity.

The proposed rules would pause trading in individual stocks in the S&P 500 if the price moves 10% or more in the preceding five-minute period. The pause would apply across U.S. equity markets, giving the markets the opportunity to attract new trading interest in an affected stock, establish a reasonable market price and resume trading in a fair and orderly fashion. Initially, these new rules would be in effect on a pilot basis through December 10, 2010. The pilot period will allow the markets to observe the effects and make appropriate adjustments to the parameters or operation of the circuit breaker based on their experiences. The goal would be to expand the scope of the rule to securities beyond the S&P 500 as soon as practicable. The SEC plans to publish the rule proposals for a brief public comment period. The SEC also announced that the staff is working with the markets to consider recalibrating current market-wide circuit breakers, which were not triggered on May 6.

The FINRA rule proposal filing, which relates to halting trading in one of the identified securities when trading is not on an exchange, can be found online.

The NYSE rule proposal filing is located online as well.

 

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