The Securities Exchange Commission announced this evening that the major equity exchanges have agreed to new rules that should help avoid a market melt down like the one that occurred last week. Six major exchanges agreed to initiate "circuit breakers" that are restrictions designed to curb trading when a stock index or individual stock or other security rises or falls to a specified level in the course of one trading day.
It is anticipated that the agreement in principal will be refined to a final version by Thursday, May 13, 2010. The NYSE, Nasdaq, BATS Global Markets, DirectEdge, International Securities Exchange, and Chicago Board Options Exchange all agreed on the following changes:
- Update existing market-wide "circuit-breakers" that will halt trading if the Dow drops by a certain percentage.
- Create market-wide "circuit-breakers" for individual equities.
- Establish clear rules for which trades should be canceled in cases of extreme volatility.
Regulators and exchanges have been examining data from millions of trades trying to determine what caused Thursday's computerized sell-off. The Dow later recovered to close the session down 342 points.
The SEC and Commodity Futures Trading Commission are continuing their investigation while also working to implement safe guards sooner rather than later. It is anticipated that the investigation will take months to complete. Certainly part of the investigation should include protocols of the government agencies that allowed the lose rules in the first place. One thing that will be looked at closely is the computer generated programs that seem to milk the markets dry, and could be part of the problem we saw last week.