The Securities and Exchange Commission (SEC) has approved new circuit-breaker rules, in an effort to keep another “flash crash” from taking place. This could go a long way toward easing the minds of exchange traded fund (ETF) investors.
The new rules, which went into effect today, will allow the SEC and Financial Industry Regulatory Authority (FINRA) to halt trading of certain stocks if the price moves 10% or more within an five-minute period. The circuit breakers that uniformly pause trading in a given security across all venues will give investors the chance to buy and sell at rational prices, reports Wallace Witkowski for MarketWatch. [ETFs and Mutual Funds in the Flash Crash.]
According to The New York Times, the approved circuit breakers are going to control any unfair trading and keep electronic trading platforms working smoothly. SEC Chairwoman Mary Shapiro suggested that the growth of new forms of electronic trading, particularly computer systems that turn over thousands of a shares a second, may be creating a false sense of market liquidity and putting many investors at a disadvantage. [Market Volatility and ETFs: Two Approaches.]
High-speed transactions, which Schapiro said now accounted for about half of trading volume, may have contributed to the market volatility on May 6.
For more stories about the ETF industry, visit our ETF 101 category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.