The Securities and Exchange Commission will propose new rules covering cancellation of trades in the wake of the May 6 stock market plunge, the agency’s chairman told a Senate panel Thursday, The Associated Press reports.
Nearly 21,000 trades were canceled because exchanges deemed them erroneous after the “flash crash,” which sent the Dow Jones industrial average down nearly 1,000 points in less than 30 minutes. Many retail investors were affected, and senators pressed at the hearing for remedies.
“The rules have got to have clarity,” SEC Chairman Mary Schapiro said. “You’ve got to provide certainty up front.”
Schapiro said the agency is examining whether decisions to cancel trades were made fairly and if market professionals fully met their legal obligations to investors.
The agency will put together new rules governing broken trades in the next few weeks, Schapiro told the Senate Banking subcommittee on securities.
“It’s hard for me to understand … how any trades can be broken arbitrarily by an exchange,” said Sen. Jim Bunning, R-Ky. “That is unfair; it undermines market discipline.”
The panel also heard from executives from the major exchanges.
Those executives will discuss a plan with the SEC next week that will provide “a clearly defined standard” of when trades should be canceled, said Eric Noll, an executive vice president of Nasdaq OMX Group Inc.
