The SEC plans to look at the opening process on primary equity exchanges, the use of circuit breakers and the reopening of trading following trading halts, all spurred by research by the agency on the huge volatility spikes that hit exchange-traded products and corporate stocks on Aug. 24.
The Securities and Exchange Commission on Tuesday issued a research paper that provided data related to trading on Aug. 24, when the Dow Jones industrial average plunged 1,000 points at the opening and $1.2 trillion of U.S. market value was lost. The paper did not make any policy recommendations, but it did provide a list of issues resulting from the Aug. 24 events that would be looked at by the SEC, including:
- The impact of current SEC regulations that prevent naked short selling and impose short-sale-related circuit breakers;
- how primary listing exchanges open trading, including the nature of trading prior to and immediately after those exchanges’ opening auctions;
- the reopening process following limit-up/limit-down halts, in which trading in a stock is paused for at least five minutes if the national best bid and offer price hits high or low pricing limits, based on the type and price of the security, for 15 seconds; and
- how marketwide circuit breakers were applied in the period after the opening of regular trading hours on Aug. 24.
The report said ETPs sustained the most volatility on Aug. 24, with about 20% of ETPs reaching limit-up/limit-down halt levels during the trading day — and most had more than one halt during the day on Aug. 24, some with as many as six. Also, the 41 largest corporate shares — those with market caps of $100 billion or more — bore the brunt of volatility that day but did not have as many limit-up/limit-down halts as ETPs.
The paper also looked at price collars imposed by NYSE Arca, where 85% of all ETPs are listed, and how they triggered multiple trading halts.
The 88-page research paper is on the SEC’s website.