An irreverent Wall Street Blog
by Bill Singer
 
Join BrokeAndBroker blog on Facebook  Follow the BrokeAndBroker blog on Twitter  Connect with BrokeAndBroker on LinkedIn  Join Bill Singer on Google+  Subscribe to RSS Feed

SEC Posts Market Circuit Breakers Investor Bulletin
Written: July 24, 2012

On July 23, 2012, the  Securities and Exchange Commission’s Office of Investor Education and Advocacy is issuing an Investor Bulletin: New Measures to Address Market Volatility, which BrokeAndBroker.com reprints in full text below:

The SEC’s Office of Investor Education and Advocacy is issuing this Investor Bulletin to inform investors of recent safeguards approved by the SEC to address market volatility in U.S. equity markets. On May 31, 2012, the SEC approved a new “Limit Up-Limit Down” mechanism to address market volatility by preventing trades in listed equity securities when triggered by large, sudden price moves in an individual stock. Additionally, the SEC approved proposed rule changes that modify existing circuit breaker procedures related to market-wide trading halts.

Background on Single-Stock Circuit Breakers - In June 2010, the Commission approved on a pilot basis procedures for single-stock circuit breaker trading pauses for five minutes if a stock’s price moves up or down sharply in a five-minute window. U.S. exchanges and the Financial Industry Regulatory Authority (FINRA) proposed these procedures in response to unusually volatile trading on May 6, 2010, that affected a large number of individual securities but was not broad enough to trigger the existing market-wide circuit breakers. These circuit breaker rules were initially applied only to stocks in the S&P 500 Index but were extended on a pilot basis to all National Market System securities in June 2011.

New Limit Up-Limit Down Mechanism - On May 31, 2012, the Commission approved a “limit up-limit down” mechanism to replace the single-stock circuit breaker rules. Because single-stock circuit breakers are triggered after a trade occurs at or outside of the applicable percentage threshold, circuit breakers have been triggered by erroneous trades. In contrast, the new limit up-limit down mechanism is intended to prevent trades in individual securities from occurring outside of a specified price band. This price band would be set at a percentage level above and below the average price of the stock over the immediately preceding five-minute trading period. These price limit bands will be 5%, 10%, 20%, or the lesser of $.15 or 75%, depending on the price of the stock. Additionally, these price bands will double during the opening and closing periods of the trading day. If the stock’s price does not naturally move back within the price bands within 15 seconds, there will be a five-minute trading pause.

This new “limit up-limit down” mechanism will be implemented in two phases. The first phase will apply the limit up-limit-down mechanism to all stocks in the S&P 500 and Russell 1000, and to select exchange traded products. This first phase will commence on February 4, 2013. The second phase of the implementation will apply the “limit up-limit down” mechanism to all remaining National Market System securities and will commence on August 5, 2013.

Revised Market-Wide Circuit Breakers - The securities and futures exchanges have procedures for coordinated cross-market trading halts if a severe market price decline reaches levels that may exhaust market liquidity. These procedures, known as market-wide circuit breakers, may halt trading temporarily or, under extreme circumstances, close the markets before the normal close of the trading session.

Under the revised rules approved by the SEC, market-wide circuit breakers will provide for cross-market trading halts during a severe market decline as measured by a single-day decrease in the S&P 500 Index. A cross-market trading halt can be triggered at three circuit breaker thresholds—7% (Level 1), 13% (Level 2), and 20% (Level 3). These triggers are set by the markets at point levels that are calculated daily based on the prior day’s closing price of the S&P 500 Index.

A market decline that triggers a Level 1 or Level 2 circuit breaker before 3:25 p.m. will halt market-wide trading for 15 minutes, while a similar market decline “at or after” 3:25 p.m. will not halt market-wide trading. A market decline that triggers a Level 3 circuit breaker, at any time during the trading day, will halt market-wide trading for the remainder of the trading day.

These revisions to the market-wide circuit breakers will be implemented on February 4, 2013. Until then, market-wide circuit breakers will continue to operate under the old market-wide circuit breaker rules which use: circuit breaker thresholds of 10% (Level 1), 20% (Level 2), and 30% (Level 3); and the Dow Jones Industrial Average as the reference index to measure daily market declines.

For additional information about the new limit up-limit down mechanism, and the revised market-wide circuit breakers, please read the following:

National Market System Plan Approval Order

Market-Wide Circuit Breaker Approval Order



 
[^top^]

Previous Entries
December 17, 2014
The road to Hell is paved with good intentions and a recent FINRA regulatory settlement involving a customer's email request for a wire transfer certa... Read On
December 16, 2014
A Personal Note From Bill Singer:It is with great sadness that I note the passing of my friend and veteran industry compliance professional Richard Be... Read On
December 15, 2014
If a public customer wants to place an idiotic order or insists on engaging in trading that seems destined to commit "economic suicide," what, if any,... Read On
December 13, 2014
Military Veterans Win $7.5 Million Employment Dispute Against Goldman SachsWhen BrokeAndBroker.com Blog's Bill Singer describes a FINRA Arbitration De... Read On
December 12, 2014
When BrokeAndBroker.com Blog's Bill Singer describes a FINRA Arbitration Decision as a "disgrace," you have to know that he's really worked up and ang... Read On
December 11, 2014
On December 8, 2014, the United States Court of Appeals for the Second Circuit ("2Cir") In re: Bernard L. Madoff Investment Securities LLC (... Read On
BrokeAndBroker.com Job Search


Related Topics
Tag Cloud
Internet FINRA Bear Stearns Bloomberg SEC NASD NYSE Money Laundering Due Diligence Waiver Forbes China Chepucavage Broy Woody Allen Madoff NAC NPR Marketplace Stanford UBS Ketchum Antitrust NASDAQ RRBDLAW Schapiro Bill Singer BrokerAndBroker USERRA Brokeandbroker.com Morgan Keegan Arbitration Counterclaim BrokeAndBroker.com Khuzami BrokeAndBroker Aleynikov Goldman Sachs brokeandbroker Promissory Note U4 Bill SInger EFL CFTC Huffington Post Flash Crash arbitration RBC RRBDLAW.com Ponzi Affinity Fraud Wachovia Raymond James BrokeandBroker.com Expungement Fraud Securities Fraud Outside Business Activity Registered Rep Magazine FOREX BrokerAndBroker.com FBI Banc of America Pro Se Supreme Court Morgan Stanley Smith Barney E*Trade Margin email Galleon Penson U5 Defamation Protocol Wells Fargo Punitive Damages Citigroup Merrill Lynch ARS Employee Forgivable Loan Street Legal Morgan Stanley AWC Fidelity Bankruptcy Broke And Broker HFT David Sobel Day Trading Ameriprise Commissions Spouse Schwab Commission CRD Kenneth Starr IRS CNBC Complaint ATM Skimming Hacking Phishing Malware Naskovets Poteroba Koval Lincoln Financial Selling Away Outside Business Activities Rakoff 2nd Circuit Second Circuit IRA 401k Forgery Tax RRBDlaw.com Email Netschi Moore Whistleblower Street Sweeper Tran Bharara Facebook Online Severance Bonus Eligibility Rule TD Ameritrade Hedge Fund SAC 1099 Smith Barney Lehman Brothers SIPC IC3 Scottrade Lehman JPMorgan Chase Hertz Insider Trading Bank of America Department of Justice Elles Bribe Auction Rate Securities Raiding Spam Edward Jones Medicare Diabetes Dow Schumer Thain Walter Bid Rigging Real Estate Discrimination Wall Street Statutory Disqualification Form U4 Form U5 Indictment Boyland DOJ Corruption bill singer FTC Do Not Call FINRA Arbitration Costa Rica Settlement LIBOR Varney Plea Rule 8210 Eligibility RRBDlaw Appeal Fowler LPL Johnson US Airways Reg D MSSB Vault Loan SunTrust Discovery Employment Rosenthal Recruiting Lawyer Trading Platform JP Morgan Employment Tuesday Wrongful Termination Bank Guarantee WaMu Solicitation REIT Martin Credit Cards Rule 3050 Away Account Credit Repair PN Advisor Placement Group Forex Mortgage Private Placement Moon CGMI Merrill Anderson Exam Lee Borrowing Tax Lien Conversion Oppenheimer Wedbush Felony Misdemeanor Expenses ING Lien OTR Estate Jobs Florida Credit Card Elderly Flash Drive Annuity Expense Reimbursement FNMA BrokeAndBroke TIC DWI Promissory Notes Suitability Will POA Power of Attorney Casino NSF MF Global Counterfeit Preet Bharara Corzine Hacker RIA Prison Disclosure NASAA Aguilar FCPA Subway Identity Theft Gold Dell Bar Injunction Bank Deutsche Bank Hospital God HSBC Private Placements Eric Stein Wire Fraud FINOP CCO Audit Joshua Brown Backstage Wall Street Obstruction of Justice Reuters Retaliation Variable Annuity Arbitraiton Outside Account Options Telephone Wine Social Media ADA Pacifico Non-Prosecution Agreement Confirm Tax Fraud Retirement OBA Equity Indexed Annuities EIA MetLife Continuing Education Cheating OIP Tax Liens Willful CE Unregistered Impersonation Annuities BBVA Business Expenses ETF JOBS Act Mail Fraud Parking Variable Annuities Signatures BitTorrent Impersonator Wire Transfer Wire Crowdfunding Nasdaq Away Accounts WSP Laptop Dodd Frank Checks RMBS AML PST Solicited Unsolicited Congress SRO Wife Discretion Non-Solicitation Restaurant Commodities Private Securities Transaction Offer of Settlement Money Market employment jobs Great Recession Chase Investment Services Arrest Barclays Liens Failure To Supervise Apple Time And Price T&P Willfully Husband Letter of Authorization LOA Sexism Debit Card Knight Test Practice Sale Unfair Competition Signature Judgments Undisclosed Settlement Trainee Fee Trust Laser Side Bar Mattera Female Sales Assistant Kennedy Charge Sexist NML Argentina Embezzlement Silver Investor Alert Judgment Bank Fraud Deceased TSSB Mary Jo White Trustee Motion To Dismiss Frumento Conspiracy 6th Circuit Proctor Rule 3040 Class Action Beneficiary NYAG Schneiderman Gallagher White Self Regulation Short Sale Compromise Website TRO Supervision Vacatur SDNY BrokeAndBroker Bill Singer Piwowar Stifel Rule 1122 Article V signature Confidential Inside Information VA Regulation SP Customer Rule 3270 Rule 3240 Annual Compliance Questionnaire OWB 2Cir Stockbrokers Altered Records
 
Email Bill Singer Connect with Bill Singer on Facebook Follow Bill Singer on Twitter Link up with Bill Singer on LinkedIn Join Bill Singer on Google+