As found on Traders Magazine Online News.
As “limit up/limit down” moves closer to reality, the Security Traders Association is asking that many market participants–not just the exchanges–have input into possible amendments to the plan.
In a letter to the Securities and Exchange Commission on Wednesday, the STA said it supported the basic design of the government’s plan to curb volatility, but it urged the creation of a user advisory committee to provide representation to the self-regulatory organizations that will likely make revisions to the plan over time.
Such a committee should include a cross section of market users, investors and agents for investors, according to the STA.
“The creation of this broad group could allow for adjustments to the plan and would better ensure beneficial future changes in market structure,” the STA said.
Under the proposed limit up/limit down rule, there would be a temporary pause in trading when certain price parameters were met for a security. For some stocks, the limit price would be 5 percent away from the bid or offer. For others, it would be 10 percent.
Once a stock’s quotes reached the limit, the market would have 15 seconds to exhaust all liquidity at that price. Once it did, the limit would be reset and trading would continue without the market having to completely halt trading.
As the rule is currently designed, amendments to the limit up/limit down plan could only be made by the plan’s participants, which are the exchanges. The STA feels there needs to be input from a broader segment of market players.
“Having an advisory board will improve the due process of decision-making on amendments which should lessen the likelihood of unforeseen negative consequences,” said Jim Toes, president and chief executive officer of the STA.
The STA is also asking for greater clarity on certain aspects of the plan, including order handling rules, which the organization believes should be consistent across all market centers.