Fawn Johnson
Dow Jones Newswires
WASHINGTON (Dow Jones)--The U.S. Securities and Exchange Commission and the major trading exchanges agreed Monday a market-wide "circuit-breaker" system should be established to handle the type of market volatility demonstrated in Thursday's unsettling market plunge, according to people familiar with the matter.
At the meeting, the exchanges each agreed to give regulators a plan for how to alter their own rules to meet a more unified standard within 24 hours, the people said.
The exchanges agreed with SEC Chairman Mary Schapiro that the disparity between how markets handle market hiccups needs to be eliminated.
"The parties agreed on a structural framework, to be refined over the next day, for strengthening circuit breakers and handling erroneous trades," according to an SEC statement.
Some lawmakers and some market analysts say that because NYSE Euronext (NYX) is the only major exchange with a "slow mode" that shuts down computer trading and relies on humans for volatile stocks, Thursday's reaction from other exchanges may be a factor that sent the market into a free fall.
Schapiro met Monday with the leaders of six exchanges--NYSE, Nasdaq OMX Group Inc. (NDAQ), BATS Exchange, Direct Edge, International Securities Exchange, Chicago Board Options Exchange--and the Financial Industry Regulatory Authority. They met earlier Monday with officials from the Commodity Futures Trading Commission.
Executives from the various exchanges, Schapiro, and CFTC Chairman Gary Gensler also met Monday with U.S. Treasury Secretary Timothy Geithner. Officials at CME Group Inc. (CME), the largest U.S. futures exchange, also attended that meeting.
A Treasury spokesman said Geithner "reinforced the need for a coordinated and timely response to help ensure the proper functioning of our markets."
Gensler said the exchanges have been "very cooperative in providing essential data and analyses" on the May 6 market events.
Regulators and the exchanges want to come up with a standardized way to handle market volatility that is simpler than the current rule, which was established in the late 1980s before trading became largely computerized and decimalized.
The new system would be more sophisticated, with guidelines based on times of day and also directed at particular stocks, the people said.
The agreement on a rule framework is just one of a number of areas in which the SEC is working with exchanges to examine Thursday's plunge.
Regulators haven't yet isolated a single cause for the tumble, although they are noting the market sensitivity around Greece and a five-second hold in a "mini" future that is considered a leading indicator for the Standard & Poor's 500.
The cause of the market plummet may be less troubling than the ripple effects that regulators and the exchanges are hoping to stem in the future. Regulators and the exchanges are constructing a timeline of the market events that occurred during the half-hour period on Thursday afternoon when the Dow Jones Industrial Average fell nearly 1,000 points before it recovered somewhat.
For now, at least, the exchanges and the regulators have agreed the SEC will be the voice behind their efforts. "I think Mary [Schapiro] provided great leadership. There's a lot of work to do, and she'll be the spokesman for the time being," said Chicago Board Options Exchange Chairman William Brodsky after Monday's meeting.
-By Fawn Johnson, Dow Jones Newswires; 202-862-9263
fawn.johnson@dowjones.comView original article
