Regulators Re-Evaluate Stock Market Circuit Breakers Some Question Effectiveness Of Device To Halt Panic Selling
Ever since last month’s stock market plunge, Topic A in the financial world has been the operation of circuit breakers, the temporary trading halts used for the first time in that sell-off.
Scrutiny of the mandatory pauses intensified Friday as federal securities regulators met with stock exchange aides to discuss possible changes. In recent weeks, some lawmakers and industry officials have questioned whether the circuit breakers, designed to give a steeply falling market a breather and halt panic selling, might actually worsen market instability.
Circuit breakers automatically halt trading on the New York Stock Exchange for a half-hour when the Dow Jones industrial average drops by 350 points and for an hour when the blue-chip indicator falls by 550 points.
The curbs were devised in 1988 in response to the Black Monday crash of Oct. 19, 1987. The market dive last Oct. 27 equaled 7.2 percent of the Dow average, compared with Black Monday’s 22.6 percent drop.
“I think we all agree that the system needs to be updated,” said Frank Zarb, chairman, CEO and president of the National Association of Securities Dealers, which operates the Nasdaq Stock Market.
“I think the intention is going to be how do we establish a system that just works better,” he told reporters Thursday. The 350-point drop level “was too early to pull the trigger,” said Zarb, who did not attend Friday’s meeting of mostly staff-level people.
Grappling with the issue in a closed-door meeting at the Securities and Exchange Commission were representatives of the market watchdog agency and the nation’s major stock exchanges.
It could be the first of several such conclaves in the coming months, since no specific proposal was apparently emerging yet.
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