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Tuesday, May 18, 2010

SEC: Comment Period for Individual Stock Circuit Breakers


"Under the proposed rules, which are subject to Commission approval following the completion of the comment period, trading in a stock would pause across U.S. equity markets for a five-minute period in the event that the stock experiences a 10 percent change in price over the preceding five minutes. The pause would give the markets the opportunity to attract new trading interest in an affected stock, establish a reasonable market price, and resume trading in a fair and orderly fashion."

-KD

10 comments:

john bailo said...

What incredible hubris...what they don't want to admit is that the computers are absolutely right and the DOW and Big Tech stocks are horribly overvalued.

Kid Dynamite said...

well john, valuation and 30 second liquidity vacuums are two different things...

getyourselfconnected said...

As long as it is BOTH ways up and down I have less of a problem with it. Of course in my conspiracy mind this sems like just the break for officials to make phone calls and get a fix in. Not that it could happen mind you.

Kid Dynamite said...

yeah - it will be for both up and down - but many people (probably mostly politicians) will make mistakes when talking about it and refer only to the "down" - because that's what they're trying to prevent! make no bones about it...

getyourselfconnected said...

Oh I know the down is the main target but I would just love to see GOOG stopped every 5 minutes for a bit as another rocket ride day happens! I can imagine daytraders at home banging their heads on computer screens yelling "You are killing my MOMO trade model!!!!!"

Anonymous said...

When you posted last week, I said I was curious to see the details. Alas, I still am, since the SEC release was lacking.

In particular, they need to specify how a price of a stock is measured. If the price change is based off of a bid, bid-ask spread or last trading price, and what the source for those prices is.

The details here are going to take some time to iron out. Halting based on a trade price could make things much worse than they currently are, since any errant single trade will halt the stock at the low, whereas a plunge in liquidity that halted a stock on a NBBO midpoint drop of 10% of more might halt before a stock traded down 10%.

-PeterPeter

Kid Dynamite said...

peterpeter - it's open for comment - tell the SEC your concerns.

Anonymous said...

> peterpeter - it's open for comment - tell the SEC your concerns.

I will file a comment, but they haven't yet posted the final language of the proposed rule...

-PeterPeter

CP said...

I think they know there is about to be a crash.

Anonymous said...

So what I want to know is what will be the unintended consequence of this?

Higher dividend yields?

Higher put premiums?

~~vlcccashmachine~~