On June 10, the Securities and Exchange Commission announced that it approved rules requiring the exchanges and the Financial Industry Regulatory Authority to implement new stock-by-stock circuit breakers. Under the rules, if a stock in the S&P 500® Index experiences a 10% change in price over the preceding five minutes, trading in such stock will be paused for a five-minute period. The pause is designed to allow the markets to attract new trading interest in the paused stock and provide time for buyers and sellers to trade at rational prices. The SEC anticipates that the exchanges and FINRA will begin implementing the rules as early as June 11.
The rules were first proposed jointly by the exchanges and FINRA in response to the May 6 market plunge, in which severe price volatility led to a large number of trades being executed at prices more than 60% below pre-decline prices. The rules will be in effect on a pilot basis until December 10 and will be limited to stocks in the S&P 500® Index, but SEC Chairman Mary Schapiro “hope[s] to rapidly expand the program to thousands of additional publicly traded companies.” In addition to the new stock-by-stock circuit breaker rules, the SEC is working with the exchanges to consider re-calibrating market-wide circuit breakers currently in place, none of which were triggered on May 6.