Jitters as flash-crash response rules take effect

Jitters as flash-crash response rules take effect
Observers worry about glitches in the brand new system
WASHINGTON (MarketWatch) — More sophisticated rules seeking to prevent another “flash crash” like the one that rattled the markets on May 6, 2010 take effect today, but observers urge regulators not to declare mission accomplished yet.Specifically, new so-called “limit up/limit down” rules will initially require trades of a group of liquid listed stocks be executed within a range tied to recent prices for that security. Later, all exchange-traded stocks will be subject to the rules.

They replace a more blunt circuit-breaker program the Securities and Exchange Commission adopted in May 2011, a year after the flash crash sent the Dow Jones Industrial Average plunging nearly 1,000 points before swiftly recovering to a 348-point loss. Those rules temporarily halted or slowed down trades of a particular stock if the price moved 10% or more in a five-minute period.

With the new rule, there will be a five-minute pause if trading is unable to occur within the price band for more than 15 seconds.

The circuit breakers were designed to halt trading of a security during periods of uncertainty, so that market participants could assess the situation and provide liquidity. http://www.marketwatch.com/story/jitters-as-f...2013-04-08