SEC puts circuit breaker rules into effect

Reforms address issues that exacerbated the 2015 flash crash

Time to read: 2 min

Last February, I wrote about changes being proposed to the SEC’s circuit breaker rules and the agency’s recent decision to abolish Rule 48, which played a hand in the flash crash of Aug. 24, 2015. When I wrote my blog in February, the SEC had approved what’s known as Amendment 12 — an effort to standardize trading procedures and increase price visibility in the event of market disruptions.

On Nov. 20, Amendment 12 officially goes into effect. Given the relevance of the SEC’s new guidelines, I thought it would be worth revisiting the key provisions of Amendment 12 by reposting what I wrote in February.


Are smart beta ETFs skewing stock valuations?

An analysis of ownership data suggests that ETFs are not the market disrupters they’re portrayed to be

Thanks in large part to the popularity of smart beta and factor-based strategies, adoption of exchange-traded funds (ETFs) has grown rapidly in recent years. Some have even speculated that the growth of ETFs is skewing the valuations of certain stocks. I do not believe that is the case. Below, I explain why.

Is the popularity of ETFs affecting single-stock ownership?


SEC moves to amend its circuit breaker rules

New reforms focus on issues that exacerbated the 2015 flash crash

Eric PollackovThe events of Aug. 24, 2015, were a wake-up call for many in the exchange-traded fund (ETF) industry. After a market selloff in Asia spread to North America on that day, a flash crash ensued — creating upheaval in the US equity markets. In addition to widespread market volatility, ETFs were hurt by diminished liquidity and price dislocation. This was due in part to the breakdown of trading mechanisms that were designed to prevent volatility.

Within a year, the Securities and Exchange Commission (SEC) enacted several changes designed to stem market volatility, including abolishing its controversial Rule 48 — a mechanism designed to ensure orderly trading, but one that created its own set of problems.

Left unresolved were harmonization between exchanges and the shortcomings of “limit-up/limit-down” rules. These rules were originally intended to put the brakes on extraordinary market volatility by halting trading in a security. But they occasionally do the reverse by reducing price visibility and preventing a security from recovering after a sharp price drop.

These issues are now being addressed. On Jan. 19, the SEC moved to amend its circuit breaker rules — formally known as The National Market System Plan to Address Extraordinary Market Volatility — by adopting what’s known as Amendment 12.

What is Amendment 12?