Exchanges agree to rework trading rules

WASHINGTON – The leaders for major securities exchanges have agreed in principle to a uniform system of “circuit breakers” that would slow trading during periods of intense market volatility, regulators said Monday.

The heads of the biggest exchanges “agreed on a structural framework, to be refined over the next day,” Securities and Exchange Commission Chairman Mary Schapiro said.

The agreement was reached by leaders of six exchanges, including the New York Stock Exchange and Nasdaq.

The absence of a uniform system is being looked at as a possible trigger for last week’s historic stock market plunge.

In an effort to calm Thursday’s rapid market swings, the New York Stock Exchange invoked a measure to slow trading. Some analysts believe that drove trades onto other electronic exchanges, which didn’t slow trading. That left fewer buyers and sellers to help set prices, potentially accelerating Thursday’s drop.

Financial regulators met with the heads of major exchanges to discuss how conflicting trading rules may have contributed to the market’s fall.

Meeting participants were weighing possible solutions to reconcile the often-conflicting rules written and enforced by different exchanges.

Streamlining the rules for triggering circuit breakers could prevent another chaotic market drop. One possibility being discussed is for exchanges to simultaneously slow trading of a specific stock if its price moves too quickly, according to a person with knowledge of the talks.

Regulators and exchanges have been poring over data from millions of trades trying to pinpoint what caused Thursday’s massive, computerized sell-off, which at one point had the Dow Jones industrial average down by nearly 1,000 points. The Dow later recovered to close the session down 342 points.

Regulators now believe the disruption was caused by a toxic, not-yet-understood feedback loop created when multiple trading schemes interacted, according to people familiar with the situation. That contradicts earlier speculation that the trigger was a small number of erroneous trades.