SEC Announces Filing of Limit Up-Limit Down Proposal to Address Extraordinary Market Volatility
April 5, 2011
The SEC announced that national securities exchanges and FINRA filed a proposal to establish a new "limit up-limit down" mechanism to address volatility in the U.S. equity markets. The proposal would establish a range (tied to recent prices for the relevant security) in which transactions in listed stocks would need to be executed. For stocks currently subject to the circuit breaker pilot, the range would be 5%. The range would be 10% for stocks not currently subject to the pilot. If approved, all trading centers (including ATSs and broker-dealer internal systems) would need to have policies and procedures to ensure trades are executed within the price bands, and to honor any trading pauses. Comments on the proposal are due within 21 days.
In a related action, the SEC declared immediately effective a FINRA proposal to extend the effectiveness of the pilot program for the trading halts under FINRA Rule 6121 through August 11, 2011, or the date on which a limit up-limit down mechanism applies to the pilot securities.
Cross References
Reg. NMS Rule 608
Proposed "Limit Up-Limit Down" NMS Plan
FINRA Rule 6121
Exchange Act Release 34-64192 (Order Extending FINRA Pilot)
Exchange Act Release 34-62251 (Order Approving Pilot Circuit Breaker Proposal)