SEC proposes changes in market halts

WASHINGTON (AP) - Federal regulators are considering changing the rules for when a dramatic shift in the stock market's value triggers exchanges to cut off trading.

The Securities and Exchange Commission put proposed changes in so-called circuit breakers out for public comment Tuesday. Those are measures that automatically halt trading if the market falls by certain percentages. The SEC wants smaller market declines to trigger halts, but it also wants to shorten the stoppages.

The "flash crash" of May 2010 didn't trigger the circuit breakers, which have activated only once since they were established in 1988.

Circuit breakers are intended to force traders to take a breather and refocus on economic and corporate news instead of an alarming market nosedive. They can't prevent people from losing money; they're aimed at keeping the market from succumbing to huge, snowballing, panic-driven sell-offs in a single day.

They now stop trading if the Dow Jones industrial average tumbles 10 percent, 20 percent or 30 percent. The new triggers would be drops of 7 percent, 13 percent or 20 percent in the Standard & Poor's 500-stock index.

The halts would be shortened to 15 minutes from the current 30 minutes, hour or two hours.

The New York Stock Exchange, the Nasdaq Stock Market Inc. and the other U.S. exchanges asked for the changes, and the SEC put them out for a 21-day formal comment period and could approve them after it ends.

The current rules were established by the NYSE in 1988 in response to a stock market plunge in October 1987, and the one time they were tripped was in 1997, when an economic crisis in Asia set off a wave of heavy selling.

Along with other measures put in place in response to the May 6, 2010, "flash crash," the proposed changes are "designed to reduce extraordinary volatility in our markets," SEC Chairman Mary Schapiro said in a statement.

The other changes include new rules spelling out when and, at what prices, erroneous stock trades should be canceled. Nearly 21,000 trades were canceled in the days following the 2010 plunge because exchanges deemed them erroneous, and many retail investors were affected.

Regulators have determined that event resulted from when an investment and trading firm executing a computerized selling program in an already stressed market. One trade by the firm worth $4.1 billion touched off a chain of events that ended with investors swiftly pulling their money from the stock market.

The SEC also has proposed establishing so-called "limit up-limit down" rules for individual stocks that would bar any trades outside specified price boundaries. Those restrictions limit how much a stock's price can rise or fall in a given day.

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