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Report: New SEC stock circuit-breaker rules expected next week

The New York Stock Exchange

Image by hubs via Flickr

Some people have blamed last week's big stock market flash-crash on the lack of individual "circuit breakers" on individual stocks and elsewhere that would kick in and prevent such massive sell-offs if stocks dive too far too quickly.

The SEC has said it is considering said circuit breakers and CNBC's very good markets reporter Bob Pisani reported moments ago that the SEC will unveil its new circuit-breaker rules next week, possibly as early as Monday.

Here's how Bob breaks it down:

"The SEC is evaluating proposals that would create new rules on: a) uniform individual stock circuit breakers, b) a global circuit breaker, and c) busting trades.

The biggest issues: a) what percentage should the individual stock circuit breakers kick in (some are proposing a 25 percent drop, but it seems it will be close to 10 percent), b) how long do they last (1 minute, 2 minutes?), what is a fair percentage range for busting trades."

The Dow's circuit breaker kicks in and trading stops when the exchange drops 10 percent before 2:30 p.m. There is no trigger after 2:30. However, if the market goes down 20 percent after 2 p.m., it closes for the day.

Here's a MarketWatch piece summing up some of the current ideas for new circuit breakers.

MarketWatch points out one component of any new circuit-breaker system, "harmonizing" them across all the exchanges:

Single-stock circuit breakers: Harmonize single-stock circuit breakers across all regulated securities exchanges and alternative execution venues in the securities markets. A stock halted on one exchange would be halted on all.

Most people don't realize there are the big stock exchanges -- such as the New York Stock Exchange -- and lots and lots of smaller ones. If trading on a particular stock gets stopped, even momentarily, on the Big Board, then traders can bypass that logjam and trade it on other exchanges, possibly driving the stock down further. Any new circuit breaker would have to include such harmonization.

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By Frank Ahrens  |  May 13, 2010; 2:15 PM ET
Categories:  Wall Street  | Tags: Bob Pisani, Business, Circuit breaker, Investing, New York Stock Exchange, SEC, Stock exchange, Stocks and Bonds  
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