News on US Circuit Breakers

TheTradeNews.com reports that the rollout of new circuit breakers could be delayed to allow firms longer to implement them.

The new limit up-limit down (LULD) and market-wide circuit breakers are scheduled for introduction on 4 February but could be delayed until 6 April, pending approval by the Securities and Exchange Commission (SEC). Testing for the enhanced circuit breakers is expected to commence on 26 January.

Here’s how it’s supposed to work:

Under the current proposals, if the national best offer of a stock equals the lower price band, or if the national best bid of a stock equals the upper price band, trading in that stock will enter a ‘limit state’.

In a limit state, trades at the upper or lower limit must be adjusted or cancelled within 15 seconds to prevent a pause to trading of that stock. The length of a pause will depend on the liquidity characteristics of the stock in question, currently five minutes for S&P 500 and Russell 1000 constituents and at 10 minutes for most other securities.

Trades that are entered outside of the price band set for a stock will be rejected or adjusted to an appropriate price, at the discretion of the broker entering the trade.

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