The SEC approved new rules - submitted by the national securities exchanges and FINRA - that will expand a market-wide circuit breaker program and clarify the process for breaking erroneous trades.  to include all stocks in the Russell 1000 Index and certain exchange-traded funds. The SEC also approved new exchange and FINRA rules that clarify the process for breaking erroneous trades.  Both sets of rules were developed in response to the Flash Crash of May 6.

    Circuit Breakers.   As adopted, the program will include all stocks in the Russell 1000 Index and certain ETFs.  exchange-traded funds will be covered.  Ccurrently, it applies only to stocks listed in the S&P 500 Index.  The SEC anticipates implementation to begin early next week.   Under the circuit breaker pilot program, which runs from June to December 10, 2010, a 5-minute pause in trading goes into effect for any covered security that experiences a 10% price change over the preceding 5 minutes.  During the pause, new trading interest can be attracted and a reasonable market price can be established.  Then, trading is resumed. 

A list of the securities included in the Russell 1000 Index, which was rebalanced on 6/25, is available on the Russell Web site.  The list of ETFs included in the pilot is available on the SEC's website. 

    Breaking Erroneous Trades.   The erroneous trade rules will make it clearer when - and at what prices - trades will be broken by the exchanges and FINRA.  As with the circuit breaker program, these rules will be in effect on a pilot basis through 12/1010. 

• For stocks subject to the circuit breaker program, stock price will determine how trades will be broken:
• • Stock Price is $25 or less: trades will be broken if the trades are at least 10% away from the circuit breaker trigger price.
  • Stock Price is $25 to $50: trades will be broken if the trades are at least 5% away from the circuit breaker trigger price.
  • Stock Price is $50: trades will be broken if the trades are at least 3% away from the circuit breaker trigger price.

• Where circuit breakers are not applicable and multiple stocks are involved, the number of stocks will determine how trades will be broken: 
  
• • Between 5 - 20 stocks:  trades will be broken that are at least 10% away from the "reference price," typically last sale before pricing was disrupted.
  • More than 20 stocks:  trades will be broken that are at least 30% away from the "reference price," typically last sale before pricing was disrupted.