Securities and Exchange Commission announced on Thursday to extend testing on its National Market System Plan to Address Extraordinary Market Volatility program, which also called the limit up-limit down (LULD) plan. The program was designed to inhibit excess volatility in domestic market and adopted in 2012.
The US Securities and Exchange Commission extended the pilot program by one year according to Reuters. The program was adopted two years after the 2010 flash crash and provide trading halt when stocks price rise or fall on the specified percentages above or below recent trading ranges.
During the 2010 flash crash, which occurred on May 6, Dow Jones was down for more than 300 points for the day. The plunge of the Dow triggered a rapid fall in the stock market, which reached a 1,000 points. Although market regain 600 points of the loss, but the incident triggered a panic in the stock market.
In order to prevent reoccurrence of such incident, SEC strengthened its security measures including in trading curb and circuit breaker in a National Market System Plan to Address Extraordinary Market Volatility program. On Thursday, SEC said to the program is extended through April 21, 2017 to give more time to evaluate its effectiveness.
That evaluation includes to easure how the program was working on August 24 market volatility. At that time, Dow Jones Industrial Average index plunged more than 1,0000 points in the first couple of minutes of trading.
The extension also allow participants to conduct further analysis to to the program. According to Exchange News Direct. the Commission also directed self-regulatory organization (SRO) participants to submit further recommendations to SEC. The commission asked the participants to recommend SEC on the erronous execution rules and other changes related to market volatility, including double-wide price bands during the opening period and the advisability of coordinated reopening procedures.
Those recommendation will allow the regulators to coordinate the rules to enable the cancellation of trades that have obvious errors. The Commission have also put a change to prevent unnecessary trading suspensions in illiquid ETFs and stocks. Financial Times reported that the new change will use the closing price from the previous trading day or the last reported sale on the primary listing exchange.
Previously, the bid and offer midpoint at the opening of the securities was used to determine when the securities will be halted. The measure was frequently proven to be far from economic value and triggering halt immediately. In regard to the new measures analysts have praised SEC.
"They are taking a very cautious approach," said an analyst at Aite Group Spencer Mindlin,. "They are making a modest change and asking for more information from the industry."
The Securities and Exchange Commission announced Thursday to extend testing on its National Market System Plan to Address Extraordinary Market Volatility. The program was designed to curb excess volatility in domestic securities market.
