The SEC has approved two proposals to limit the volatility of (1) individual stocks and (2) the market itself. The first proposal, named the National Market System Plan Approval Order (“NMSP”), can be found here and is designed to limit the significant price changes of individual stocks. NMSP is intended to replace the single-stock circuit breaker pilot that was previously adopted and set to expire in July 2012. The second proposal is the Market-Wide Circuit Breaker Approval Order (“MWCB”), which can be found here and is intended to revise the existing market wide circuit breakers.
NMSP is designed to prevent any trades from occurring that are outside the price band of an individual security. The price band will be 5% for Tier 1 exchange traded products listed in Appendix A of the NMSP (such as JPMorgan Alerian MLP Index ETN) and 10% for all others. NMSP will require all trading centers, exchanges and broker-dealers executing trades internally to “establish policies and procedures to prevent trades from occurring outside the applicable price bands, honor any trading pause, and otherwise comply with the procedures set forth in the plan.”
MWCB focuses on the broader market by revising the current rules regarding market wide breakers. Some of the revisions include lowering the number of trigger time periods to two (2), instead of the current six (6) periods. Additionally, the market decline percentage thresholds that trigger a breaker have been lowered to seven (7), 13, and 20 percent from the current thresholds of 10, 20 or 30, respectively.