US Markets

SEC will look into ETFs, Rule 48: Commissioner

Don't panic on volatility: SEC's Gallagher

The Securities and Exchange Commission will "absolutely" look into exchange-traded funds, as well as Rule 48, in the wake of the recent market selloff, the agency's commissioner, Dan Gallagher, said Wednesday.

The New York Stock Exchange invoked Rule 48 to pre-empt panic trading several times in the past week. The little-used regulation, which allows stocks to open without price quotes ahead of time, is meant to ensure a more orderly open when it appears there are going to be big price gaps.

"We're going to have tons of data to look at after last week. Data about the ETFs, data about the performance of Rule 48," Gallagher said in an interview with CNBC's "Closing Bell."

"Rule 48 went into place in 2007 at a time when you were shifting from specialists into electronic trading here on the floor. It made sense in 2007. Does it still make sense today? We'll have to look at that."

The rule has been invoked 77 times since it was approved by the SEC. Critics have denounced it as hindering transparency.

Some traders also blamed Rule 48 for the 1,278 so-called circuit breakers that were tripped across the major averages last week. Circuit breakers are trading halts imposed when shares fall to various levels.

ETFs plunged lower as orders failed to get filled, with many funds falling below their net asset value.

While Gallagher is a big proponent of ETFs, he said the data from last week need to be studied to see if there are any remedies that should be made.

"We have a discrete issue in the application of the limit up/limit down circuit breakers to ETFs," he said. "Do we need to differentiate ETFs from common stock when we look at circuit breakers? Do they operate so differently that they shouldn't be just lumped in under the same rule?"

Meanwhile, he has some advice for investors who may be panicking over the recent market volatility—don't worry, just focus on the long term.

"Markets, this is the way they work. They fluctuate. People get scared when they see these fluctuations but this is the greatness of American capital markets."

—CNBC's Jeff Cox and Krysia Lenzo contributed to this report.