Stock exchanges join to counteract volatility
The nation’s three biggest stock exchanges are nearing release of a joint plan aimed at calming extreme volatility like the 1,000-point sell-off that rocked markets nearly a year ago.
NYSE Group, Nasdaq and Bats Global Markets on Thursday said they’re working on new rules to increase market “resiliency” and establish a joint procedure for resuming trading in stocks and exchange traded funds after market halts. The plans will be filed with the Securities and Exchange Commission in the coming weeks, the exchanges said.
The SEC said it looked forward to reviewing the filings.
The collaborative effort represents an update to the 2012 “Limit Up-Limit Down” rule the SEC approved on pilot basis to prevent trades in individual stocks outside of specified price bands. Used during times of volatility, the rule allows investors to continue stock trades that fall within the price bands, but halts trading above or below those limits.
The exchanges said their ef-
forts focus on:
uEliminating time periods when securities could trade without Limit Up-Limit Down price bands in place. uReducing the number of trading pauses.
uEstablishing a common standard for automated trading reopenings after a market pause.
The proposals represent a response to the Aug. 24, 2015, Wall Street turbulence in which the Dow Jones Industrial Average briefly plunged more than 1,000 points. The Dow ultimately recovered but still finished the day 588 points lower in a session that included multiple trading halts some market participants said made it difficult for stock prices to return to proper trading levels.
In March, nearly 20 financial firms sent the SEC an open letter that urged changes in existing market rules “to limit the likelihood of a similar event occurring in the future.”
Three of the companies, BlackRock, Vanguard and State Street Global Advisors, on Thursday called the new plans “an important step towards improving equity market structure” that would “protect investors and promote fair and orderly markets.”