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Upgrading Circuit Breakers

Something is better than nothing, at least according to the U.S. Securities and Exchange Commission. All of the nation’s exchanges may soon install a circuit breaker for each domestic stock, now that the SEC last week expanded measures to avert another flash crash.

A trading algorithm run amok caused the flash crash, casting a dark and enduring shadow over high-frequency trading.

“The circuit-breaker function briefly pauses trading in a particular stock or exchange-traded fund if its price rises or falls by 10 percent or more within a five-minute period,” according to The Wall Street Journal’s coverage of the new SEC decision. “Broadening the existing plan will afford protection to more stocks while the new program is finalized.”

At least there’s a stop gap in place while they’re finalizing. These preventative-though-temporary trading halts would go into effect as soon as Aug. 8, covering securities not sorted by similar measures put in place after last year’s electronic disaster that took the Dow Jones Industrial Average on an almost 1,000-point dive.

The S&P 500 and Russell 1000 are already on board the pilot program, as are hundreds of prominent ETFs, according to WSJ. This expanded version will give prices a bit more latitude before the circuit breaks.

Now we wait to see what the permanent solution will look like. Any ideas?


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