Trading curbs backed
Study says measures rarely disrupt stock market
11/8/2011NEW YORK — The trading pauses used to curb volatility in U.S. equities since June, 2010, are working as planned and rarely disrupt trading, according to a new study by Credit Suisse Group AG.
Circuit breakers adopted after the May 6, 2010, so-called flash crash that erased almost 1,000 points from the Dow were deployed 111 times through last month, Credit Suisse said.
Trading was halted 56 times after news on takeovers, litigation, and other events. The other pauses fell into three categories: trading in illiquid or low-priced stocks, “fat-finger” orders mistakenly placed at prices far from previous levels or for more shares than intended, and single “bad prints.”
Advisers to the Securities and Exchange Commission and Commodity Futures Trading Commission said in February that the five-minute halts had been “particularly problematic” in cases where a single trade prompted the pause. Credit Suisse found that happened 6.3 percent of the time. It said 12 circuit breakers were caused by fat-finger trades that spurred a flurry of transactions far from previous prices and seven by a single order, and 36 involved stocks that didn’t trade actively or that were priced below $1.
The halting mechanism was adopted by U.S. exchanges to prevent rapid price moves and help prevent a downward chain reaction.
The system halts stocks in the Standard & Poor’s 500 Index and Russell 1000 Index as well as about 350 exchange-traded funds after they rise or fall at least 10 percent within five minutes.