New Flash Crash Prevention In Effect
Rules intended to prevent another “flash crash” like the one that shook Wall
Street on May 6, 2010 that sent the Dow Jones Industrial Average plunging nearly
1,000 points before swiftly recovering to a 348-point loss, took effect today.
The “limit up/limit down” rule initially requires trades from a group of liquid
listed stocks be executed within a range tied to recent prices for that security
with a five-minute pause if trading is unable to occur within the price band for
more than 15 seconds. Price will be based on the average price of the security
over the preceding five minutes. The limit-up/limit-down system is considered
more advanced because it would halt trading if the market is faced with a major
liquidity event. The 15-second “limit state” feature allows the market to
correct naturally in the event of an erroneous order without the longer halt.
The new rule would mean that - if the S&P 500 (SPX) drops by 7%, 13% or 20% from
the previous day’s closing price - U.S. stock markets would cease trading for 15
minutes. The new circuit breakers reduce the percentage decline that would
trigger a market-wide trading halt and reduces the amount of time that trading
is halted for. Throughout a typical trading session, more liquid securities
typically have narrower 5% bands than less liquid ones which have 10% bands.
Occasionally, other erroneous actions such as a mis-typed erroneous limit price,
have triggered the circuit breakers that were designed to halt trading of a
security during periods of uncertainty, so that market participants could assess
the situation and provide liquidity. The rule replaced the circuit-breaker
program that temporarily halted or slowed down trades of a particular stock if
the price moved 10% or more in a five-minute period, enacted by the Securities
and Exchange Commission in May 2011. Along with a new set of controls to
implement the new system, exchanges, alternative trading systems and
broker-dealers acting as market-makers have been setting up automated systems.
Existing market-wide circuit breakers that - when triggered - halt trading in
all exchange-listed securities throughout the U.S. markets are being updated by
the SEC. The idea is to implement the program on a number of the most liquid
securities first, monitor the results then expand it to all equities as the
restrictions are implemented in phases and eventually apply to all
Mary Jo White, former U.S. attorney for the Southern District of New York in
Manhattan for almost 10 years, and partner at the law firm of Debevoise &
Plimpton LLP in New York, was almost unanimously approved by the Senate on
Monday to head the Securities and Exchange Commission. White notably supervised
the prosecution of New York mob boss John Gotti. White received strong
bipartisan backing by lawmakers on the Senate Banking Committee and was approved
by that panel with a vote of 21 to 1 on March 19, with her strong enforcement
credentials. According to an SEC spokesman, White can start her job at the SEC
as soon as tomorrow, pending completion of the confirmation process. White
acknowledges that federal prosecutors are instructed by Justice Department
policy to consider the collateral consequences of a criminal indictment,
including any impact on shareholders, employees and the public although she
maintains her stance that no bank is too big to charge. She specialized in
prosecuting complex securities and financial frauds during her tenure as a U.S.
attorney. Additionally, White led the prosecution that resulted in the
conviction of four followers of al Qaeda leader Osama bin Laden for the 1998
bombings of two U.S. embassies in Africa that killed 224 people. White faced
prior criticism stemming from her defense while in private practice in a 2010
civil lawsuit of Ken Lewis who was at the helm of Bank of America Corp. (BAC).
Former New York Attorney General Andrew Cuomo accused Lewis of misleading
shareholders in the institution’s acquisition of Merrill Lynch while BAC
received billions of a dollars in a federal bailout during the height of the
financial crisis. According to documents from the Office of Government Ethics,
other high-profile clients White has represented include Deutsche Telekom AG;
General Electric (GE); Rajat Gupta - former Goldman Sachs (GS) director
sentenced to two years in prison in October 2012 after being convicted of
insider-trading charges; and J.P. Morgan Chase & Co. (JPM).
Chief Executive Ron Johnson of J.C. Penney Company (JCP) is stepping down,
leaving the future of a company that lost $1 billion over the past year in the
hands of its former CEO Mike Ullman. Penney said Ullman, who left Penney in
November 2011 after Ackman pushed to bring Johnson in, served for seven years as
Penney CEO and has a 25 year retail industry experience. Question remains
unanswered by Penney as to whether the return of Ullman is on an interim basis
or if the company plans to seek a permanent replacement. “While J.C. Penney has
faced a difficult period, its legacy as a leader in American retailing is an
asset that can be built upon and leveraged,” Ullman said in the statement. “To
that end, my plan is to immediately engage with the company’s customers, team
members, vendors and shareholders, to understand their needs, views and
insights. With that knowledge, I will work with the leadership team and the
Board to develop and clearly articulate a game plan to establish a foundation
for future success.” Johnson leaves Penney in disarray after facing criticism
for eliminating the sales and coupons in 2012 without a broad market test, a
move that led to a dramatic sales slump. Penney was in the midst of rolling out
in-store shops strategy by Johnson which included home section featuring brands
such as Michael Graves and Jonathan Adler.
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April 8, 2013