The SEC announced plans in early July 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 (NYSE Arca: SPY), the PowerShares QQQ (NasdaqGM: QQQQ) and the iShares MSCI Emerging Markets Index Fund (NYSE Arca: 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 circuit breakers in June on all the stocks of the S&P 500 Index, and pledged at the time to include ETFs in the program as soon as possible.
The SEC is also considering steps to deter or prohibit the use of “stub quotes,” the placeholder prices market makers are required to publish 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, with a 10-day public comment period. It is not clear when they will be implemented. |
