The first SEC regulatory changes following the “flash crash” were approved June 10 and set to be put in place June 11, instituting single stock circuit breakers on a trial basis through Dec. 10, 2010. The call for circuit breakers on individual stocks came after none of the market-wide circuit breakers were tripped on May 6.
Under the new regulation, trading in a stock that has dipped 10% in a five-minute period will be frozen for five minutes. According to the SEC press release, “The pause, which would apply to stocks in the S&P 500 ® index, 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.”
While there is hope that these circuit breakers will remove the possibility of another flash crash, there are still some areas that may need shoring up.
“Circuit breakers need to be circuit wide for them to make sense. There needs to be uniform rules across all market places and coordination with the derivatives market,” says Paul Zubulake, Senior Analyst at Aite Group.