The SEC (SEC news) has moved forcefully in the wake of the May 6 Flash Crash, proposing a new set of circuit breakers on individual stocks in the S&P 500 that would hold across exchanges and execution venues. Trading will halt in a stock if the price moves by 10 percent or more in a five-minute period. Over time, we'll likely see other stock included in the rule. The trial period will begin in 10 days and last at least until Dec. 10.

Circuit breakers may not be the total answer. During this pilot period, we may also see some other measures proposed, such as restrictions on the use of stub quotes that were never meant to be real quotes but ended up being used in real executions--at a penny. The SEC is also pondering how best to implement some sort of audit trail to aid in the forensics of market gyrations.

So are Flash Crashes a thing of the past? Not necessarily. We may end up with a quick series of single-stock flash crashes that would halt the market piecemeal, hardly a desirable situation. All this might make for an odd volatility. Still, this is a solid first step to allow for more analysis to be done. There are some implementation issues, such as who will declare when a circuit breaker is in force and how will this be communicated and enforced.

For more:
- here's an overview from the AP

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