Securities exchanges OK more uniform trade rules
5/11/2010NEW YORK - The major securities exchanges put aside some of their differences yesterday and agreed to coordinate trading rules to prevent stock plunges such as last week's historic dive.
The Securities and Exchange Commission said the six exchanges agreed in principle during a meeting with regulators to a uniform system of "circuit breakers." Those curb trading when a stock index or individual stock or other security rises or falls to a specified level in a trading day.
Four days after the plunge that sent the Dow Jones industrial average down 1,000 points in less than 30 minutes, regulators were still saying publicly that they did not know the exact reason.
But there is a growing belief that the way different exchanges manage their trades and rapid price swings contributed to the intensity of the selling and the size of the slide.
A definitive answer could take weeks because regulators are going through information from across the market by hand, said people familiar with the situation who spoke on condition of anonymity because they were not authorized to discuss the investigation.
In an effort to calm the market swings last Thursday, the New York Stock Exchange implemented restrictions to slow trading.
Many analysts believe that resulted in sell orders being sent automatically to exchanges that had no trading restrictions. Selling continued at a furious pace.
A person familiar with the situation who spoke on condition of anonymity said that by today the exchanges will submit a joint proposal to:
•Update marketwide circuit breakers that halt trading if the Dow drops by a certain percentage.
•Create marketwide circuit breakers for individual stocks. Several big stocks, including Procter & Gamble Co. were major contributors to Thursday's plunge.
•Establish rules for which trades should be canceled in cases of extreme volatility. After Thursday's chaos, the exchanges agreed to cancel trades that were called erroneous. Those were trades made during a 20-minute window and whose stock prices fell at least 60 percent.
Treasury Secretary Timothy Geithner and other regulators met with the heads of major exchanges yesterday.
Besides NYSE and Nasdaq, the exchanges were BATS Global Markets, DirectEdge, International Securities Exchange, and Chicago Board Options Exchange. Officials from CME Group Inc., which operates the biggest commodities markets, and IntercontinentalExchange also met with regulators.