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SEC expands stocks under 'circuit breakers'

SEC expands stocks under 'circuit breakers'

Federal regulators on Friday expanded the number of stocks covered by new "circuit breakers" that can pause volatile trading, a program in response to the panicked May 6 market plunge.
The Securities and Exchange Commission approved expansion of the six-month pilot program of circuit breakers for stocks in the Standard & Poor's 500 index. Now all stocks in the Russell 1000 index also will be covered.
The program, which began in mid-June, briefly halts trading of stocks that make big price swings. Trading of covered stocks that rise or fall 10 percent or more within a five-minute span is halted for five additional minutes.
The "flash crash" on May 6 saw the Dow Jones industrials plunge nearly 1,000 points in less than a half-hour. About 30 stocks listed in the S&P 500 index fell at least 10 percent within five minutes.
Regulators and lawmakers have acknowledged that the massive disruption undermined investors' confidence in the financial markets.
U.S. stock exchanges and the brokerage industry's self-policing organization are expected to begin putting the expanded circuit breakers into effect early next week, the SEC said in a news release.
The trading halts "give the markets an opportunity to attract new trading interest in an affected stock, establish a reasonable market price, and resume trading in a fair and orderly fashion," the agency said.
The regulators haven't pinpointed a single cause for the May 6 breakdown. They have cited a number of factors, including a severe draining of cash from the market that may have been worsened by the withdrawal of electronic traders and the use of so-called 'stop-loss" market orders. Stop-loss orders set the price at which a stock is automatically sold when it declines to a specified level.
The SEC commissioners also approved new rules, proposed by the exchanges, that spell out when and at what prices erroneous stock trades should be canceled.
Nearly 21,000 trades were canceled in the market plunge because exchanges deemed them erroneous. Many retail investors were affected. SEC officials have said the goal is to bring consistency to the rules governing broken trades.
"These circuit breakers and this more objective guidance on breaking erroneous trades will help our markets retain the confidence of investors and companies," SEC Chairman Mary Schapiro said in a statement. "We have worked quickly with the exchanges to take these steps, and we will continue to be very focused on addressing weaknesses exposed on May 6."


Updated : 2021-05-12 23:21 GMT+08:00