Could SEC Circuit Breakers Cause Problems in ETFs?
The Securities and Exchange Commission (SEC) has extended its circuit breaker program to cover certain exchange traded funds (ETFs), sparking worries about unintended consequences. The changes, which will take place next week, are aimed at preventing a repeat of the “flash crash” that happened on May 6. Steve Dew and Oliver Ludwig for Index Universe report that in addition to covering every stock in the S&P 500, it will also extend to 344 ETFs. Under the program, trade is halted in a stock that moves more than 10% in five minutes. [Regulation Hits ETFs.] The major concern surrounding to program is that it could end up destabilizing financial markets if they don’t work as they should. For example, one trader says that the rule would cease trading on a heavily traded ETF if a single bid or ask is 10% or more from the last good sale. Under the rule, trading in the SPDR S&P 500 ETF (NYSEArca: SPY) would have been halted twice in the last 18 months. [When Circuit Breakers Debuted…] This,
