On September 27, 2011, the SEC announced that the national securities exchanges and 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.
Market-wide circuit breakers were not triggered during the severe market disruption of May 6, 2010, known as the “Flash Crash.” This led the stock exchanges and FINRA, in consultation with SEC staff, to assess whether the circuit breakers needed to be modified or updated in light of modern market structure.
The new proposals would update the market-wide circuit breakers by the following, among other things:
- reducing the market decline percentage thresholds necessary to trigger a circuit breaker from 10%, 20% and 30% to 7%, 13% and 20%, respectively, 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
- changing the reference index used to measure a market decline from the Dow Jones Industrial Average to the broader S&P 500 Index
The proposed rules will be available on the SEC’s website. The SEC intends to promptly publish the proposed rules in the Federal Register for a 21-day public comment period and then will review the comments received on the proposals.