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November 2, 2011

Circuit Breakers Get Refreshed

By Peter Chapman

Exchanges and the Financial Industry Regulatory Authority, under federal guidance, have proposed updated marketwide circuit-breaker parameters.

The existing parameters have been in place since 1988 and were triggered only once in 1997. In light of the May 6, 2010 "flash crash" avoiding a trigger, the current circuit breakers are deemed outdated.

The marketwide circuit breakers go into effect when the stock market drops by a certain percentage. A trigger requires the exchanges to halt trading.

There are five significant changes under the proposal. First, trigger points will be updated daily rather than quarterly. Second, the Standard & Poor's 500 Index will be substituted for the Dow Jones Industrial Average as a market measure.

Third, the trigger percentages have been lowered. Fourth, the proposal shortens the length of any halt to no longer than 15 minutes.

Finally, under the proposal, trading can be halted at any time between 9:30 a.m. and 3:25 p.m. Currently, the last opportunity to halt trading is 2:30 p.m., unless the market drops severely.

 


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