* Nasdaq unveils own circuit breaker after ‘flash crash’
* BATS CEO: Nasdaq flies in face of market-wide regulation
* NYSE has had a circuit breaker since 2006
(Adds details on regulation, comments from BATS CEO, Nasdaq, NYSE, analysts, additional dateline and byline)
By Jonathan Spicer and Clare Baldwin
WASHINGTON/NEW YORK, June 2 (Reuters) - The Nasdaq Stock Market said on Wednesday it will launch its own system for halting trading when markets crash, a move that would align it more closely with the New York Stock Exchange, but also could complicate broader attempts toward market-wide safeguards.
Parent company Nasdaq OMX Group Inc (NDAQ.O) said the new circuit breaker, known as the NASDAQ Volatility Guard, will pause trading based on predetermined thresholds across all NASDAQ-listed securities. It is meant to curb sharp volatility in the wake of the May 6 “flash crash,” an executive said.
Nasdaq's announcement follows a May 18 proposal by the U.S. Securities and Exchange Commission for circuit breakers for all stocks in the S&P 500 index .SPX that would halt trading in an individual stock, market wide, for five minutes if it fell more than 10 percent in a five minute period. [ID:nN18173855]
“Our performance on May 6 wasn’t exemplary to be frank. We want to take responsibility for the fact that there were aberrant executions on our market,” Eric Noll, Nasdaq OMX’s executive vice president of transactions, told Reuters.
Nasdaq canceled thousands of trades after the crash in which the Dow Jones Industrial average fell some 700 points in minutes before rebounding, rattling investors globally and sparking the new push for circuit breakers.
In addition to a possible market-wide circuit breaker, the SEC has said it wants to adjust existing market-wide index-based circuit breakers, which did not trip on May 6.
“On the surface, this move flies in the face of the industry-wide effort to coordinate behavior among all the marketplaces in times of stress,” said Joe Ratterman, the chief executive of BATS Global Markets, the third-largest U.S. exchange operator, on the sidelines of the SEC round-table in Washington. [ID:nN18173855]
Noll, also at the round-table, said in an interview that the new exchange-specific breakers will work in conjunction with the SEC-endorsed market-wide circuit breakers and that he backs the SEC’s reevaluation of the market pauses.
NYSE Euronext’s NYX.N Big Board has had its own circuit breaker in place since 2006.
“NYSE Liquidity Replenishment Points have demonstrated their value in helping to dampen volatility in NYSE-listed stocks and opportunity for human judgment to assist accurate price discovery in periods of price dislocation,” NYSE spokesman Ray Pellecchia said in an e-mail. “We’re flattered to see Nasdaq’s attempt to replicate this idea in its market.”
Nasdaq’s circuit breaker will allow data to be universally available before, during and after the trading pause and the reopening process will be available to all market participants for better price discovery.
The exchange said the volatility guard will supplement the pilot plan proposed by the SEC, along with major exchanges and market watchdog FINRA, which is set to end on Dec. 10.
The NASDAQ Volatility Guard will go into effect in the third quarter of 2010.
“At the end of the day I think (circuit breakers are) going to be mandated from the top, from the regulators, but they will certainly take into account the bottom up approach,” said Sang Lee, a managing partner and specialist in market structure at consulting firm Aite Group.
Thomas Weisel Partners analyst David Grossman said regulators would ultimately demand robust safeguards.
“Safe guards aren’t proprietary so if one has it, the other should be able to replicate it and, in fact, the regulators would want best practices in place to help prevent a reoccurrence,” he added. (Reporting by Chuck Mikolajczak and Clare Baldwin in New York and Jonathan Spicer in Washington; editing by Tim Dobbyn and Andre Grenon)