Effective Date of New Circuit Breakers Postponed
February 5, 2013
The Financial Industry Regulatory Authority has pushed back the implementation of new price bands and market-wide circuit breakers by two months.
The regulator of securities brokers said it filed rule changes with the Securities and Exchange Commission that will move the start of new price bands and market-wide circuit breakers to April 8, from February 4.
The limits up and down on stocks will be phased in, with completion set for September 30.
The price bands and market-wide circuit breaker changes are responses to the Flash Crash of May 6, 2010. Both changes in schedule took effect with filing of the changes with the commission, FINRA said.
National exchanges, including those operated by NYSE Euronext, Nasdaq OMX Group, BATS Global Markets and Direct Edge, had been scheduled to implement new limits on the upward and downward movement of prices in individual stocks, during a given trading day, as well as market-wide circuit breakers, to curb volatility in their markets.
The individual stock limits will apply to all over-the-counter transactions involving an exchange-listed security reported through a FINRA system.
The limits on stocks in the Standard & Poor’s 500 Index, the Russell 1000 Index, and certain exchange-traded products will be 5 percent above or below the average price of the previous five-minute period. For other listed securities, the price band would be 10 percent above or blow.
Broader price bands will apply to securities priced $3 per share or less.
The new market-wide circuit breaker rules update the existing rules by reducing the market decline percentage that triggers a halt in trading to 7, 13 or 20 percent from the prior day’s closing price, rather than declines of 10, 20, or 30 percent.
The benchmark for the drops now will be the Standard & Poor’s 500 Index, rather than the Dow Jones Industrial Average.
There will be only two relevant periods: Before and after 3:25 p.m.
If a threshold is tripped before 3:25 p.m., trading will halt for 15 minutes. If a 20 percent drop occurs, trading will stop for the day.
FINRA said existing rules also put a 3 percent threshold on stocks over $50. Meaning: a stock priced at $100 that drops to $96 would break the 3 percent threshold and be deemed “erroneous.”
FINRA said the new timetables are immediately effective, because they do not harm investors or burden competition.