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SEC Offers Trade-Break Rules for Public Comment

The SEC is moving toward clear rules on how to break erroneous trades. After hundreds of trades were broken on May 6, the SEC made it clear they were seeking development of clear rules for breaking trades. Such rules do not currently exist; the exchanges simply make ad hoc decisions.

This afternoon, the SEC has put out for public comment a series of unified rules.

Under the proposed rules for stocks that are subject to single-stock circuit breakers, trades would be broken at specified levels.

1) For stocks priced $25 or less, trades would be broken if the trades are at least 10 percent away from the circuit-breaker trigger price.

2) For stocks priced more than $25 to $50, trades would be broken if they are 5 percent away from the circuit-breaker trigger price.

3) For stocks priced more than $50, the trades would be broken if they are 3 percent away from the circuit-breaker trigger price.

Where circuit breakers are not yet applicable, the exchanges and FINRA propose to break trades at specified levels for events involving multiple stocks depending on how many stocks are involved.

1) For events involving between five and 20 stocks, trades would be broken that are at least 10 percent away from the reference price.

2) For events involving more than 20 stocks, trades would be broken that are at least 30 percent away from the reference price.

The SEC wil publish the rules in the Federal Register for a 21-day comment period, and likely adopt them shortly thereafter.

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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