By Daniel Wagner & Stevenson Jacobs
WASHINGTON (AP) — The leaders for major securities exchanges have agreed in principle to a uniform system of "circuit breakers" that would slow trading during periods of intense market volatility, Federal regulators said Monday.
The heads of the biggest exchanges "agreed on a structural framework, to be refined over the next day," Securities and Exchange Commission Chairman Mary Schapiro said.
The agreement has been reached by leaders of six exchanges, including the New York Stock Exchange and NASDAQ.
The absence of a uniform system is being looked at as a possible trigger for last week's historic stock market plunge.
In an effort to calm Thursday's rapid market swings, the New York Stock Exchange invoked a measure to slow trading. Some analysts believe that drove trades onto other electronic exchanges, which didn't slow trading. That left fewer buyers and sellers to help set prices, potentially accelerating Thursday's drop.
Financial regulators met with the heads of major exchanges to discuss how conflicting trading rules may have contributed to the market's fall. The meeting was set to continue Monday afternoon with Treasury Secretary Timothy Geithner.Meeting participants were weighing possible solutions to reconcile the often-conflicting rules written and enforced by different exchanges. Several exchanges, including NYSE and NASDAQ, already have circuit breakers that slow trading when stocks move too fast in either direction. Yet the trigger for those circuit breakers varies from exchange to exchange. That discrepancy can disrupt markets if some exchanges slow trading and others don't, as happened on Thursday.
Streamlining the rules for triggering circuit breakers could prevent another chaotic market drop. One possibility being discussed is for exchanges to simultaneously slow trading of a specific stock if its price moves too quickly, according to a person with knowledge of the talks. Exchanges also are discussing whether the trigger for slowing trading should be based on the rate of percentage change in the value of a stock or its trading volume, according to the person, who spoke on condition of anonymity because he wasn't authorized to publicly discuss the matter.