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SEC Advisory Committee Weighs in on August 24 Volatility

In a recent meeting, several members of the SEC’s Equity Market Structure Advisory Committee debated potential changes to equity market structure prompted by volatility on August 24, 2015. That day, markets faced extreme volatility, more than 1,278 trading halts, and the late opening of many symbols on NYSE. The committee discussed the need to reconsider the current opening process for markets, as well as the reopening process after a trading halt, and the need to refine limit-up, limit-down rules.

According to Reuters, many on the committee argued that stop orders amplified volatility and should be addressed by the Commission. Additionally, members suggested that additional opportunities for investor education on the order type should be considered. NYSE had previously announced that it will stop accepting stop orders and good till cancelled orders on February 26, joining Nasdaq in that decision.

The meeting was not without drama, as NYSE and Nasdaq decided the previous week that they would not participate as non-members in behind-the-scenes subcommittee discussions meant to conduct in-depth analysis of issues because they were not offered seats on the full committee. The four subcommittees cover (i) Regulation NMS; (ii) Trading Venues Regulation; (iii) Customer Issues; and (iv) Market Quality. The two exchanges, along with Charles Schwab, sent a letter in October complaining about the composition of the committee and arguing that the subcommittees should be covered by the Sunshine Act, thus ensuring greater transparency. The 17-member committee was formed a year ago after a seven-month debate over its composition.

At the meeting, representatives from the NYSE suggested that the exchange would move to eliminate the rule which allows “market makers to suspend their normal obligation to publicize the likely price that shares will open for trading.” NYSE faced criticism for invoking the rule in August which led to the late open of many symbols on the exchange.

A summary of the meeting can be found here