• 03
  • September
    2010

Atlanta securities lawyers have learned that because of trading halts caused by off-exchange transactions, the Financial Industry Regulatory Authority is tightening industry practices. Several of the eight trading halts initiated since early June were prompted by off-exchange transactions, including trades in shares of Citigroup Inc. and Micron Technology Inc.

Finra wants it to be at least less less likely that private trades will set off the new circuit breakers that freeze all stock deals.

Under the new rules, there would be a 5 minute timeout in trading if a stock swings more than...

10% in a five-minute period. The timeout would allow market participants to reassess the price. Circuit breakers can also take effect if a transaction is carried out on more lightly regulated, private venues.

Estimates are that approximately thirty percent of U.S. stock trades are off-exchange, transacted on electronic venues like dark pools or executed by Wall Street banks that match up customers' buy and sell orders.

If FINRA finds a private trade that seems anomalous, it sends the report back for double-checking. Now the process has to evolve with a more volatile market.

Finra has also modified what sorts of trades impact the last sale price of a stock, to allow for certain event- or derivatives-linked transactions that may push shares beyond the circuit-breaker caps.

The challenge is setting up a system that will properly set off circuit breakers when needed, but will not stop legitimate trading that may look unusual to the system.

Source: Wall Street Journal "Halts Due to Off-Exchange Trades Targeted" September 2, 2010