The three biggest US stock exchanges - Bats, Nasdaq, and Nyse - have drawn up a set of harmonised rules to deal with trade halts during volatile markets.
The exchanges, who intend file their proposals with the US Securities and Exchange Commission in the coming weeks, say the overhaul will help to increase resiliency during times of extreme volatility.
It comes just a year after a topsy-turvy day in US equities trading resulted in trade halts for more than 1000 stocks and exchange-traded funds.
The new rules will update the National Market System Plan to Address Extraordinary Market Volatility (Luld Plan), which was approved on a pilot basis by the SEC in 2012 and is designed to prevent trades in individual securities outside of specified 'Luld' price bands.
The exchanges’ goals are focused on four key areas:
- Eliminating the time periods where securities could trade without Luld Bands in place;
- Reducing the number of Trading Pauses;
- Standardisation of primary exchange automated re-openings following a Trading Pause; and,
- Elimination of Clearly Erroneous Execution (“CEE”) rules when Luld Bands are in effect.
The Exchange's have already implemented a number of adjustments to operating procedures over the past year, including using the previous day’s closing price as the reference price at the open on occasions when no opening print is available on the primary exchange. They says that since the implementation of these changes, there has been approximately a 75% reduction in spurious LULD Trading Pauses.