SEC seeks regulations to prevent May 6 "flash crash"

Posted on Wednesday, May 19th 2010 at 12:57 p.m.

On May 6 we wrote about the crazy market plunge in the NYSE that may have been triggered by human error and compounded by automated trading rules in place.

Today the Wall Street Journal reports that the SEC is considering implementing rules to prevent future errors from moving the market dramatically in a short period of time.  Put simply, trading in stocks that move a certain percentage of price in a short period of time will be paused in order to try and prevent a crash.  While I am not a financial expert, I believe the limits the SEC are proposing would still allow for a human-fueled selloff based on a bad earnings call or announcement, but would prevent an artificial selloff that has no basis in reality.

I’m glad that the reaction to this incident has been to examine the systems that drive the market and ensure that they don’t artificially effect stock prices.

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