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New circuit breakers will take effect next week on the NYSE aimed at preventing another "flash crash." Under this new system, halts are triggered based on where the price of the stock was trading during the previous five minute period. They will be in effect from 9:45 a.m. to 3:35 p.m.
During the crash of May 6, some stocks crashed to near zero. For example, Accenture (ACN) plunged from $40 to an incredible penny per share.
Traders have mixed feelings about the new rules. Some say that those with high-speed computers will be able to sniff out when the circuit breakers will kick in, leaving traders on slower platforms with open positions.
Many traders question whether the circuit breakers will work at all. With the 10% rule, in a fast market a stock may move up or down more than 10% before the circuit breaker kicks in.
Then there is the problem of handling executions. In commodity markets during fast trading, brokers are not held on limit orders. Often a commodity will trade through your price and you must accept the lower price. Whether this will be the case in the stock market remains an open question.
And now for the granddaddy of all kinks. This ban only covers trading when the NYSE is open. It does not cover the electronic overnight trading. We could wake up to a market that has already crashed. The SEC must deal with electronic trading in overnight sessions.
Do you believe that these new circuit breakers will work?
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Reader Comments (Page 1 of 1)
6-03-2010 @ 8:40PM
william lindblad said...
The 10-10 rule is in the realm of peter pan and therefore, if you believe in tinker bell, in will work. I really don't expect much confidence in this safeguard.
I also do not think that we will see a repeat of the electronic fiasco that is behind this thinking. Something that the SEC failed to consider is that the market itself cannot operate in a normal functional mode with this kind of fluctuations. That being the case, the market will take steps to prevent re-occurrence. They also have a better handle on preventive. The Libertarian belief that finance/business will police itself does have potential when it effects everybody. Than it will work.
The SEC is supposed to be a watchdog agency. They flunked when it came to Bernie and are running with "D"s and "F"s over the rest of market spectrum for the last 10 years. Given this, getting my vote of confidence is going to be pretty damn difficult - and I do believe that I can safely speak for the majority. As you point out, this rule only effects the open market and as such is out of date with the trading of today. Imagine a situation in which the after hours crashed - and the panic it would set off prior to open market trading. When the opening bell sounds the bears would eating and the bulls in full stampede. A 10 minute lapse would only exacerbate the condition - how long could these stops continue before chaos would set in?
6-04-2010 @ 11:11AM
greggekjohn said...
Do you know WHY the circut breakers are being placed???? Because the World BANK and the FEDERAL RESERVE BOARD needs to control consumer confidance...YOU can control allmost all people> the thoughts there news media puts in their minds