Thumbs Up for Limit Up/Limit Down

According to Trader Magazine’s Peter Chapman, the trading community likes the proposed limit up/limit down rule, but it still has quibbles.

Steve Nelson

Steve Nelson

The response from traders has largely been positive. “The trading community did not like the individual circuit breakers,” said Steve Nelson, founder of the Nelson Law Firm and an attorney for the New York chapter of the Security Traders Association. “Limit up/limit down is seen as an improvement over that system.”

In April, the securities exchanges and the Financial Industry Regulatory Authority proposed a reworking of the trading halt mechanism put in place after last year’s “flash crash.” Comment letters have been streaming into the office of the Securities and Exchange Commission, which must approve the proposal.

Formally known as the “Plan to Address Extraordinary Market Volatility,” the limit up/limit down proposal seeks to improve upon the original. First, it is designed to prevent erroneous trades from occurring. Second, it seeks to avoid a trading halt by introducing a 15-second “limit state” of continuous trading before any halt can occur. The limit up/limit down proposal is modeled after a similar scheme used in the futures market, but is more complex.

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