The Securities and Exchange Commission announced plans last week
to expand the stock-by-stock circuit breaker rules implemented in
the wake of the May 6 "Flash Crash" for S&P 500 listings to
include 344 ETFs and all the securities listed in the Russell 1000
Index of large-cap stocks.
The expanded circuit breakers will apply to some of the most
heavily traded ETFs, including the SPDR S&P 500 ETF
(NYSEArca:SPY), the PowerShares QQQ (NasdaqGM:QQQQ), and the
iShares MSCI Emerging Markets Index Fund (NYSEArca:EEM). The new
rules will also cover some leveraged and inverse-leveraged ETFs and
a handful of ETNs, the SEC said in a press release.
The circuit breakers will pause trading in individual securities
uniformly across the major U.S. markets for a five-minute period in
the event that any security experiences a 10 percent price change
during the preceding five minutes. The SEC implemented stock
breakers last month on all the stocks of the S&P 500 Index, and
pledged at the time to include ETFs in the program as soon as
The new rules will also cover some inverse-leveraged ETFs and a
handful of exchange-traded notes, or ETNs, the SEC said in a press
release. No leveraged ETFs were included in the initial group of
"The proposals would expand the uniform circuit breakers to many
more stocks and ETFs," said SEC Chairman Mary Schapiro in the press
Choosing The ETFs
NYSE Euronext, the parent company of the New York Stock
Exchange, developed the list of 344 ETFs in consultation with other
major exchanges and the Financial Industry Regulatory
NYSE Euronext winnowed down the universe of U.S. ETFs by
excluding products whose average daily trade volume was less than
$2 million worth of shares, it said in a press release.
The SEC is also considering steps to deter or prohibit the use
of "stub quotes," the placeholder prices market makers are required
to publish, even during market disruptions, that assign minimum and
maximum bid and offers.
During the flash crash, many ETFs suffered so-called broken
trades when market makers submitted stub quote prices of a penny or
less amid a deluge of selling and evaporating liquidity.
The SEC published the proposed expansion of the stock-by-stock
circuit breakers on June 30. They would not take effect until at
least the 10-day public comment period has elapsed.
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