Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues - White Papers

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Studies produced by the Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues.

Recommendations Regarding Regulatory Response to the Market Events of May 6, 2010

Released on February 18, 2011, this report highlights several issues, and makes recommendations for each:

  • Volatility recommendations
    • Single stock pauses, or "circuit breakers;"
    • Streamlined procedures for the breaking of trades during times of "aberrant price movements;"
    • Implement minimum quoting requirements by market makers;
    • Implement and coordinate limit up/limit down policies; and
    • Consider a "second tier" pre-trade risk safeguards during instances of insufficient liquidity.
  • Restrictions on co-location and direct access recommendations:
    • Direct access through registered broker-dealers, who must have screens in place to reduce occurrence of erroneous orders;
    • CFTC rulemaking should address "disruptive trading activities" with respect to large orders.
  • Liquidity enhancement recommendations
    • Liquidity pricing and rebates -- could contain incentives for providing "peak load" liquidity
    • Market maker obligations -- quotations should be "reasonably related to the market."
    • Fairly allocate the cost imposed by high levels of order cancellations, perhaps by assessing a fee.
    • Preferencing, internalization, and routing protocols;
    • Information provision to address reporting requirements for measures of liquidity and order imbalances; and
  • Regulators' access to information recommendation:
    • SEC and CFTC should implement a consolidated audit trail for the US equity markets and augment existing data collection regarding orders and executions.
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