The biggest US equity exchanges said they must align trading rules to prevent conflicting systems from repeating the failures of handling buy and sell orders that worsened last week’s rout.
Circuit breakers designed to slow trading or shut markets during volatile period may have prevented the biggest losses on May 6, when the Dow Jones Industrial Average fell 998.5 points intraday, according to Bats Global Markets Inc, Direct Edge Holdings LLC and White Cap Trading LLC. The Securities and Exchange Commission is studying changes to calm markets when prices tumble, people familiar with the matter said May 7.
“The differences in order handling employed by US markets needs significant work and must be addressed,” wrote Joe Ratterman, the chief executive officer of five-year-old alternative exchange Bats, in an e-mail. “When acting alone, apart from each other, these differences might prove to be a big part of the very problem they are trying to handle.”
The plunge that erased almost $700 billion from American stocks in eight minutes shows how increased competition among US exchanges has left gaps in market coordination. Rules to slow trading on the New York Stock Exchange drove orders to as many as 50 other platforms that swamped demand, pushing share prices of companies from Accenture Plc to Exelon Corp to pennies. Those trades were later canceled.
SEC Meeting
Chief executive officers of the biggest US exchanges will meet today with the SEC to discuss the selloff, four people familiar with the situation said yesterday. Congressional hearings are scheduled this week on what caused the plunge, which pushed the Dow average down 9.2 per cent.