SEC Analyzes Market Volatility Occurring on August 24, 2015

The SEC Division of Trading and Markets, Office of Analytics and Research, analyzed the operation of U.S. equity markets occurring under stressed conditions on August 24, 2015.

An SEC Research Note provided information on trading occurring on August 24. Issues raised by trading on that day have been debated among market participants and in the media and include: (i) the opening process at primary listing exchanges; (ii) the triggering of trading pauses under the National Market System Plan to Address Extraordinary Market Volatility (commonly known as the Limit Up-Limit Down or "LULD" Plan); and (iii) the effects of market volatility on trading in exchange-traded products ("ETPs").

The Research Note analyzed the following: (i) data and summary statistics; (ii) S&P 500 and NASDAQ-100 indices and market-wide circuit breakers; (iii) corporate and ETP trading; (iv) primary listed exchanges' openings; (v) LULD Plan operations and related SRO rules and practices; and (vi) focused ETP trading.

The Research Note highlighted "key data points" for the market of August 24:

• Price Declines: Corporate stocks with the largest capitalization were particularly affected and the largest capitalization ETPs experienced declines that were similar to those of smaller ETPs. In addition, Regulation SHO short sale restrictions ("SSRs") were triggered in more than 2,000 securities, which is the second largest number since SSRs were implemented in 2011.
• Trading Metrics: Trading volume in the minutes following the open was much higher than in control periods, while quoted depth (inside through 19 cents away) was much lower in the opening minutes than in control periods. Consequently, the surge in selling in the minutes following the open interacted with much lower than normal levels of displayed liquidity.
• Opening Process and Market-Wide Circuit Breakers: The S&P Index ("SPX") is referenced in SRO rules to determine whether market-wide circuit breakers are triggered. Because the SPX did not decline by 7% (the first level trigger), the market-wide circuit breakers, which would have implemented a 15-minute trading pause in all equities and related products, were not triggered.
• LULD Halts: Although most of the 1,278 LULD trading halts occurred in ETPs, 80% of ETPs did not experience a LULD halt.
• ETPs: ETPs as a class experienced more substantial increases in volume and volatility than corporate stocks, but the volatility of individual ETPs varied widely.

The SEC stated that the Research Note "should be regarded as a preliminary step to help inform a public assessment of the operation of U.S. equity markets under stressed conditions," rather than as the reaching of "any legal conclusions or factual findings" regarding the causes of, or potential steps to address, the volatility.