U.S. Exchanges Said to Seek Delay for Volatility Curbs
The biggest U.S. equity exchange operators and an industry trade group plan to ask the Securities and Exchange Commission to delay the final phase of a marketwide program aimed at curbing sudden stock swings, according to three people with direct knowledge of the matter.
NYSE Euronext (NYX), Nasdaq OMX Group Inc. (NDAQ) and the Securities Industry and Financial Markets Association plan to seek more time to consider how the program known as limit-up/limit-down will work in the final minutes of trading, according to the people, who asked not to be named because the talks are private.
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.
As part of its implementation, limit-up/limit-down has been turned off during the first 15 minutes and last 30 minutes of the trading day, when volume is greatest. Exchange officials are concerned that enabling it in the last half hour will make an orderly close difficult by preventing some stocks from reopening after they are paused, the people said.
The program is scheduled to be extended to 9:30 a.m. to 4 p.m. on Aug. 1. Sifma and the trading venues plan to argue that there’s not enough time to resolve the issue and ask that the extension to the final half-hour be pushed back, according to two of the people. The exchanges and Sifma do not object to the curbs being implemented in the first 15 minutes for most stocks starting Aug. 1, the people said.
All stocks in the Standard & Poor’s 500 Index and Russell 1000 Index are due to be covered by the program by the end of July, as well as some exchange-traded products, according to a summary on Nasdaq’s website.
Under limit-up/limit down, 15-second pauses are triggered if orders to buy or sell stock are outside a preset price band. The period provides time for subsequent bids and offers to move back toward the market price. If they remain outside the band, a five-minute halt starts.
The SEC anticipates receiving a letter soon from Sifma explaining how the industry wants to proceed on applying limit-up/limit-down to the close, said a fourth person familiar with the matter. The commission would have to approve the decision. John Nester, an SEC spokesman, declined to comment.
The securities industry previously voiced its concern about the impact of the new rule at the market close.
In response to the SEC order about limit-up/limit-down, the agency said it received six comment letters, including one from Sifma, asking that the rule not be put in effect for the final 10 minutes of the trading day.
“Given that liquidity often is highest at or around the close of trading, we believe that continuous trading -- without the application of price bands or trading pauses -- should be permitted for some period of time prior to the close of trading,” wrote Ann Vlcek, managing director and associate general counsel at Sifma, in a June 22, 2011, letter.
“In all instances, the commission should avoid any situation in which a pause may occur near the close of regular trading in a manner that does not permit an exchange to conduct an orderly reopening to establish a closing price for a stock,” she wrote.
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