UPDATE 1-SEC mulls 3-month extension of old flash crash plan

Thu Dec 2, 2010 1:51pm EST

Related Topics

* Circuit breakers pilot expires Dec. 10

* Regulator wants replacement "limit up/limit down" plan

* Permanent fix for May 6-like market drops sought (Adds background on trading curbs, byline)

By Rachelle Younglai and Jonathan Spicer

WASHINGTON/NEW YORK, Dec 2 (Reuters) - U.S. regulators are considering a three-month extension to their pilot program that gives stocks a reprieve when they are in freefall, people familiar with the situation said on Thursday.

The Securities and Exchange Commission's circuit breaker program expires Dec. 10 and the regulator is under pressure to find permanent solutions to bolster market integrity after the May "flash crash."

The circuit breakers pause trading in a company's stock when it is dropping precipitously. The SEC is now trying to craft measures known as "limit up/limit down" that would slow, not stop, trading when markets fall.

But the SEC has been deluged with work since the passage of the Dodd-Frank legislation in July, delaying fixes for the fragmented and high-speed U.S. equity markets. [ID:nN30293234]

Now the SEC is considering extending its circuit breaker program by at least three months to give the exchanges time to implement new measures, said the sources, who were not authorized to speak to the press.

Some $1 trillion of paper value was temporarily wiped out in the surprise May 6 "flash crash," which rattled investors and called into question the basic structure of the mostly electronic U.S. marketplace.

The stock-specific circuit breakers were adopted in June as the main response to the unprecedented crash.

They stop trading for five minutes when a stock moves more than 10 percent in five minutes. These new circuit breakers are in addition to older index-based breakers that did not trip on May 6. (Reporting by Rachelle Younglai and Jonathan Spicer)

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