The revisions are designed to respond to problems exposed by a market rout on August 24, 2015, when safeguards intended to limit extreme volatility were blamed for exacerbating the market turmoil. The changes, which the Securities and Exchange Commission must approve, could be implemented by early next year.
The crux of the change is extending the auction process that seeks to balance supply and demand after a stock has hit a circuit breaker, which triggers a trading halt. The exchanges say the new plan is likely to reduce the frequency of trading halts – there were more than 1,200 on August 24, 2015 – that occur during extreme trading sessions.
The auctions generally last five minutes but can last up to 10 minutes under current rules, and market wide trading resumes even if there are far more sellers than buyers in the auction. That mismatch is likely to further skew prices once trading reopens, leading to another pause, which is what happened in the 2015 incident, when many stocks and exchange-traded funds experienced multiple halts.