Circuit breakers for stock trading on US exchanges will come into effect from today, a move necessitated by the severe fluctuations in shares of certain companies that led to the Wall Street crash on May 6.
The new curbs, which would come into play if individual share prices move by ten per cent or more in a five-minute period, has been approved by US market regulator SEC.
The US Securities and Exchange Commission (SEC) said it expects the new rules to be implemented from June 11 and will be applicable to stocks in the S&P 500 index.
"By establishing a set of circuit breakers that uniformly pauses trading in a given security across all venues, new rules will ensure all markets pause simultaneously and provide time for buyers and sellers to trade at rational prices," SEC Chairperson Mary Schapiro said on Thursday.
On May 6, the benchmark Dow Jones Industrial Average plummeted about 1,000 points for a few minutes, but recovered most of the losses before ending the day with an over one per cent loss at 10,520.32 points.
As per the new rules, trading in a stock would pause across US equity markets for a five-minute period in case the share experiences a 10 per cent change in price over the preceding five minutes.
These curbs would give breathing space for markets to attract new trading interest in an affected stock and establish a reasonable market price, SEC said.
"Initially, these new rules would be in effect on a pilot basis through December 10, 2010," the statement noted.
The new circuit breaker rules were proposed by the National Securities Exchanges and the Financial Industry Regulatory Authority (FINRA) last month.
According to the SEC, the pilot period (for new curbs) would help the markets to make appropriate adjustments to the circuit breakers and expand the rules to securities beyond the S&P 500 (including ETFs) as soon as practicable.