The first proposal sets up a "limit up-limit down" mechanism, thwarting individual exchange-listed stocks from occurring outside of a specified price band and with changes to the existing single-stock circuit breakers that the Commission approved on a pilot basis after the market events of 6 May 2010.
The second initiative provides update of existing market-wide circuit breakers, which when started, halts trading in all exchange-listed securities throughout the US markets.
The FSA and FINRA have agreed to adopt the policies by 4 February 2013, and both approved the aforesaid proposals for a one-year pilot period, during which the exchanges, FINRA, and the Commission will assess their operation and consider whether any amendment is requisite.
SEC Chairman Mary Schapiro said today’s complex electronic markets need an automated and appropriately calibrated way to pause or limit trading if prices move too far too fast.
"The Commission, along with the exchanges and FINRA, will be closely monitoring the operation of the new limit up-limit down and market-wide circuit breaker processes during the pilot period to make sure any rules approved on a permanent basis are as effective as they can be," Schapiro added.
SEC and FINRA, together has spun off the "limit up-limit down" mechanism, which prevents trades in individual listed equity securities from occurring outside of a specified price band, which would be set at a percentage level above and below the average price of the security over the immediately preceding five-minute period.
All trading centers, such as exchanges, automated trading venues, and broker-dealers executing trades internally, must establish policies and procedures under the new plan to prevent trades from occurring outside the applicable price bands, honor any trading pause, and otherwise comply with the procedures set forth in the plan.
