SEC approves 'circuit breaker'

The US markets regulator, the Securities and Exchange Commission (SEC), said Thursday it had approved new circuit-breaker rules on stock trading in response to last month's "flash crash."

The new rules will require the stock exchanges and the Financial Industry Regulatory Authority to pause trading on certain individual stocks for five minutes if the price moves 10 percent or more in a five-minute period, the SEC said in a statement.

The measures "come in response to the market disruption of May 6" and were proposed by the securities exchanges and FINRA, the federal agency said.

The five-minute pause "would give the markets the opportunity to attract new trading interest in an affected stock, establish a reasonable market price, and resume trading in a fair and orderly fashion," the SEC said.

The rules aim to prevent the panic selling that swept US stock markets on May 6. In a matter of minutes, the blue-chip Dow Jones Industrial Average plummeted almost 1,000 points, an unprecedented plunge that instantly wiped out billions of dollars in market value. The Dow recouped more than half of those losses by the market close.

The cause of the "flash crash" remains under investigation.

"The May 6 market disruption illustrated a sudden, but temporary, breakdown in the market's price-setting function when a number of stocks and ETFs (exchange-traded funds) were executed at clearly irrational prices," Mary Schapiro, SEC chair, said in the statement.

"I suspect what we will find was a confluence of a number of events. But we have got to keep plowing through the data so we can be sure," Schapiro said in an interview on the sidelines of a conference in Montreal.

"By establishing a set of circuit breakers that uniformly pauses trading in a given security across all venues, these new rules will ensure that all markets pause simultaneously and provide time for buyers and sellers to trade at rational prices," she said.


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