The SEC approved rule changes that all the major exchanges had submitted in June, pertaining to:  (i) expanding the pilot rules for trading pauses due to extraordinary market volatility;  (ii) setting forth clearer standards and curtail SRO discretion with respect to breaking erroneous trades.  Here's what's changing.  

    SEC Release 34-62884, 9/10 (Trading Pauses).   The trading pause pilot currently applies to individual stocks in the S&P 500 Index - and activates when a price moves 10% or more in the preceding 5-minute period.  Going forward, the pilot will be expanded to include individual stocks in the Russell 1000 Index, along with specified Exchange Traded Products - ETFs, ETNs (notes). 

On 6/10, the SEC approved a pilot rule, effective through 12/10/10, under which Exchanges would pause trading during periods of extraordinary market volatility in S&P 500 stocks (the “Phase I Circuit Breaker Pilot”).  The Listing Markets are required to issue 5-minute trading pauses for individual securities for which they are the primary Listing Market if the transaction price of the security moves 10% or more from a price in the preceding 5-minute period.  The Listing Markets are required to notify the other Exchanges and market participants of the imposition of a trading pause by immediately disseminating a special indicator over the consolidated tape.  Once the Listing Market issues a trading pause, the other Exchanges are required to pause trading in the security on their markets.

At the end of the 5-minute pause, the Listing Market reopens trading in the security in accordance with its procedures for doing so, followed by trading on other Exchanges and in the OTC market.  In the event of a significant imbalance on the Listing Market at the end of the trading pause, the Listing Market may delay reopening.  If the pause extends to 10 minutes, the other Exchanges may resume trading. 

    Under The New Rules.   The Exchanges will add securities included in the Russell 1000, as well as specified ETPs, to the pilot (the “Phase II Circuit Breaker Pilot”) - having the beneficial effect of applying the circuit breakers’ protections against excessive volatility to a larger group of securities, while at the same time allowing the opportunity, during the pilot period, for continued review of the operation of the circuit breakers and an assessment of whether the pilot should be further expanded or modified.  The Exchanges believe that securities in the Russell 1000 have similar trading characteristics to securities included in the S&P 500. 

The Phase II Circuit Breaker Pilot will add the more liquid ETPs – specifically, those with a minimum average daily volume of $2mn – that tend to have similar trading characteristics as securities in the S&P 500 and Russell 1000, and for which they believe a 10% circuit breaker trigger is appropriate.  It will also include ETPs that are subject to comparable circuit breakers, even though they did not meet the $2,000,000 average daily volume threshold - i.e., so long as they tracked similar stocks and indices. 

For further details, continue reading using the above link.