Regulators and the exchanges are reacting to the May 6 "flash crash" with investigations and products designed to protect investors in today's volatile markets. Yesterday, Nasdaq said in the third quarter of 2010 it will launch Nasdaq Volatility GuardSM, a single stock circuit breaker which will pause trading based on predetermined thresholds across all Nasdaq-listed securities.
This circuit breaker is designed to supplement a program by the Securites and Exchange Commission (SEC) that will end Dec. 10 that puts a pause on trading for stocks within the S&P 500 that experience price changes of 10% or more.
The SEC held a roundtable to discuss the events of May 6 this week, and the agency listened to traders' concerns but has not yet offered definitive conclusions on what caused the crash. Possible theories include stub quotes and increased high frequency trading. One Enron whistleblower suggested the crash was a result of one firm testing for weakness to game the system in the future. Either way, May 6 likely will have an effect on exchange offerings and could impact trading in the future. How will circuit breakers affect your trading? Let us know in the comments below.