The Securities and Exchange Commission is planning to institute trading curbs on major exchanges and individual stocks starting in mid June. The proposal is for "circuit breakers" to kick in when the market drops 5% between the hours of 9:45 a.m. and 3:35 p.m.

Why are these proposals inadequate? First, Gary Gensler of the Commodity Futures Trading Commission testified that it was the sale of 75,000 e-mini S&P contracts by Waddell and Reed that started the sell off. This kicked off high-speed computers by big banks and traders all over the country. Within 20 minutes, the trading in just this one contract swelled to over 840,000 contracts, plunging the Dow down 998 points, or nearly $1 trillion dollars.

We went months and months without trading curbs being in effect. Now it is almost daily as the new volatility trend is much higher. The New York Stock Exchange itself calls it trading collars and the levels change each quarter. For the third quarter, trading collars go into effect when the Dow Jones Industrial Average is +190 points or -190 points. Here at the NYSE site you can also see how far the market has to move before any trading halts start coming into play.

If you aren't sure what trading curbs are, when the market rises above a threshold program buying can only be done on a down-tick. Conversely, if the market is tanking then program selling can only be done on an uptick. This keeps a little bit of a cap on the stock market and keeps it from getting too out of hand in either direction. That is the theory anyhow.

Now that the down-tick rule has been eliminated as of July short sellers can openly short sell a stock at the bid regardless of a downtick. This has already been blamed a bit on the major down days. Trading curbs are essentially the last buffer outside of market halts.

When that +190 or -190 changes to only a 90 point change, then trading curbs come back off until the 190 pont change is hit again. The gap-ups were so big in some of these stocks that it isn't all that surprising that we have given up some of the post- cut gains from the Fed cutting the discount rate for members.

Jon Ogg is a partner at 24/7 Wall St.; he is the publisher of the 24/7 Wall St. Special Situation Investing Newsletter and does not own securities in the companies he covers.