SEC Seeks To Change Market Circuit Breakers

[MadMarketScientist 11]

From 24/7 Wall Street:

 

After the Flash Crash of 2010 and with the proliferation of how much the trading machines dominate the markets now, this needed to be done.

 

The thresholds will lower the broad market decline percentage triggers, shorten the duration of the trading halts, and also change the reference index. The existing market-wide circuit breakers were originally adopted in October 1988 and have only been triggered on one day in 1997.

 

The basic proposals are as follows:

 

Lower the market decline percentage thresholds from 10%, 20%, and 30% down to new levels of 7%, 13%, and 20% from the prior day’s closing price.

The duration of the trading halts that do not close the market for the day would go from 30 minutes, 60 minutes, or 120 minutes down to 15 minutes.

Rather than six time periods, the only two relevant trigger time periods would be before 3:25 P.P. and on or after 3:25 P.M.

The new proposal would strip the Dow Jones Industrial Average as the reference index and would change to the S&P 500 Index as the pricing reference.

 

Read more: SEC Seeks To Change Market Circuit Breakers - 24/7 Wall St. http://247wallst.com/2011/09/27/sec-seeks-to-change-market-circuit-breakers/#ixzz1ZHJfd5Cv

 

Very interesting ... and about time!

 

MMS

[MightyMouse 12]

Seems like they are putting controls on volatility. There will be lots of unintended consequences.

[Tams 20]

I think it is a good thing.

 

we want the market to move,

but not at an extreme speed or direction that you cannot get in or out.

[Tradewinds 12]

Those changes seems reasonable. I'm not sure how much of a difference it will really make to those who can't react fast enough after the market opens back up. If the flash move had a legitimate reason, the people with the 401K's are still probably going to get the raw end of the deal. And the average broker managing your 401K will need to call you, talk it over, and have you come in and sign a paper giving permission for the broker to adjust your account. Plus the broker will be trying to handle 500 phone calls that day from customers. By the time anything can be done, it will still be to late for the average person.

 

Actually, most people with any kind of a retirement account probably never, ever talk to a broker or get any investment advice at all. For those people, they are at the mercy of the market no matter what happens.

[MightyMouse 12]

Those changes seems reasonable. I'm not sure how much of a difference it will really make to those who can't react fast enough after the market opens back up. If the flash move had a legitimate reason, the people with the 401K's are still probably going to get the raw end of the deal. And the average broker managing your 401K will need to call you, talk it over, and have you come in and sign a paper giving permission for the broker to adjust your account. Plus the broker will be trying to handle 500 phone calls that day from customers. By the time anything can be done, it will still be to late for the average person.

 

Actually, most people with any kind of a retirement account probably never, ever talk to a broker or get any investment advice at all. For those people, they are at the mercy of the market no matter what happens.

 

The majority of 401k's allow you to call and have your positions liquidated at the end of the day. The broker doesn't need to be involved or even know or care.

 

I think IBD used to have a mutual fund redemption index which showed that when mutual fund redemptions were at an extreme, the market bottomed and visa versa.