Exchanges to Delay Limit Up/Limit Down Curbs From Trading Close

The biggest U.S. exchange owners will postpone full implementation of the limit up/limit down system of volatility curbs after alerting securities regulators to concern about how it will work at the close of trading.

NYSE Euronext and Nasdaq OMX Group Inc. (NDAQ) will hold off extending the program to the last 15 minutes of trading days, according to an equity regulatory alert on Nasdaq’s website. The exchanges want more tests to gauge its effect on procedures used to establish closing prices, Bloomberg News reported July 3.

Regulators have been fine-tuning systems for curbing volatility since the so-called flash crash of May 2010 briefly erased $862 billion from equity markets. The limit-up/limit-down initiative replaces a system of share halts known as circuit breakers and has been phased-in gradually since April.

“Providing additional time for the participants and the securities industry to test the manner by which the plan operates around the close, particularly when there is a trading pause less than five minutes before the scheduled close of trading, is necessary,” wrote Janet McGinness, executive vice president of NYSE Euronext, in a July 17 letter on behalf of the exchanges and the Financial Industry Regulatory Authority.

Since it was implemented in April, limit-up/limit-down has been in effect from 9:45 a.m. to 3:30 p.m., avoiding the trading periods when volume is greatest. Exchange officials are concerned that enabling it in the last 15 minutes will make an orderly close difficult by preventing some stocks from reopening after they are paused.

Under the updated plans, limit up/limit down will be extended to cover trading from 9:30 a.m. to 3:45 p.m. New York time. In the statement on its website, Nasdaq said limit up/limit down will be extended to 4 p.m. by Dec. 8. It added the extension to 9:30 a.m. and 3:45 p.m. will take place on Aug. 5, a Monday, rather than the previous Aug. 1 date.

Under limit up/limit down, there is a 15-second pause in trading if orders to buy or sell a stock are outside an established price band. If subsequent bids and offers remain outside the band, the stock is halted for five minutes.

To contact the reporter on this story: Sam Mamudi in New York at smamudi@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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