SEC: Exchanges coordinate rules

May 11, 2010 at 12:00a.m.

Associated Press

NEW YORK

The major securities exchanges put aside some of their differences Monday and agreed to coordinate trading rules to prevent stock plunges like last week’s historic dive.

The Securities and Exchange Commission said the six exchanges agreed in principle during a meeting with regulators to a uniform system of “circuit breakers.” Those are restrictions that would curb trading when a stock index or individual stock or other security rises or falls to a specified level in the course of a trading day.

Four days after the plunge that sent the Dow Jones industrials down to a loss of nearly 1,000 points in less than 30 minutes, regulators still were saying publicly that they did not know the exact reason for the drop. But there is a growing belief that the varying trading rules on different exchanges contributed to the intensity of the selling and the size of the market’s slide.

People familiar with the situation said regulators believe the disruption was caused by the way different exchanges manage their trades and rapid price swings. A definitive answer could take weeks because regulators are going through information from across the market by hand, said the people, who spoke on condition of anonymity because they were not authorized to discuss the investigation.

The SEC said the exchanges, including the New York Stock Exchange and Nasdaq, “agreed on a structural framework, to be refined over the next day,” that would more closely align trading rules.

To calm the market swings Thursday, the NYSE implemented restrictions to slow trading. But many analysts believe the NYSE’s action resulted in orders to sell being sent automatically to other electronic exchanges that had no trading restrictions. Selling continued at a furious pace.

The NYSE, Nasdaq and other exchanges have marketwide circuit breakers. The agreement in principle reached Monday includes three goals to strengthen trading restrictions.