SEC Approves New Exchange Rules Addressing Extraordinary Stock and Market Volatility | White & Case LLP International Law Firm, Global Law Practice
SEC Approves New Exchange Rules Addressing Extraordinary Stock and Market Volatility

SEC Approves New Exchange Rules Addressing Extraordinary Stock and Market Volatility

On May 31, 2012, the Securities and Exchange Commission (the "Commission") approved two rule proposals made by the national securities exchanges and by the Financial Industry Regulatory Authority ("FINRA") that are designed to address extraordinary volatility in individual exchange-listed securities and the broader US stock market. Among other things, the new rules are designed to address events such as the severe volatility that occurred on May 6, 2010, colloquially known also as the "flash crash," when the Dow Jones Industrial Average lost more than 600 points in five minutes. Once fully implemented, the new exchange rules will make two significant changes: (1) they will update the existing market-wide circuit breakers with lower triggering thresholds and shorter trading halts and (2) they will replace the existing single-stock circuit breakers that halt trading in an individual stock with a new "limit up-limit down" mechanism that requires trades in listed securities to be executed within a range tied to recent prices for that security.

The exchanges and FINRA will have until February 4, 2013 to implement these rule changes pursuant to a one-year pilot period, during which time the exchanges, FINRA and the Commission will decide whether any additional changes to the rules are appropriate.

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