Trader Talk

How NYSE/Nasdaq Circuit Breakers Will Work


The SEC has issued a statement on its meeting with NYSE Chief Duncan Niederauer and Nasdaq chief Robert Greifeld: "As a first step, the parties agreed on a structural framework, to be refined over the next day, for strengthening circuit breakers and handling erroneous trades."

What kind of circuit breakers? It seems that, as I suspected, the SEC will require a uniform circuit breaker across all markets. What does this mean?

They will likely implement a uniform requirement that there be a temporary halt or slowing in trading on an individual stock once the price drops (or rises) a certain percent in a short period. Say, if a stock drops 5 percent in 30 seconds, the stock stops trading for one minute, three minutes, five minutes — whatever.

This would apply on the Nasdaq, as well as the NYSE or any other exchange.

What about the NYSE's liquid replenishment points (LRPs), which slows trading in individual stocks when trading drops or rises beyond a certain points?

Not clear, but I would presume the NYSE would be welcome to keep them, if they were more stringent than the agreement on the uniform circuit breakers.

How would this change be accomplished? Not clear, but since there is a certain urgency it may be accomplished by use of an Executive Order, which goes around the whole process of putting out comments for a 60-day period, and all the usual SEC procedural issues.

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