Amid the market turmoil on August 24th, trading was disrupted by delayed openings, more than 1,000 halts, and wild price swings. In fact, by 9:40am that day over a hundred S&P 500 stocks were still not open for trading. BlackRock has put out a paper this week with what it believes could be the solution to prevent a repeat incident. In order to curb volatility, the asset manager is championing uniform circuit breaker thresholds throughout the trading day, fully electronic market opens, and limiting stop-loss orders which execute at any market price once triggered.
“Blackrock’s leadership in helping avoid that kind of exchange-traded products volatility, especially around liquidity provision, is critical,” said Bill Harts, chief executive officer of Modern Markets Initiative, an industry group for high-speed traders. “The paper imparts a solid understanding of market structure and the role of principal trading firms in ETP markets.” The report suggests tweaking the system underlying trading halts, called limit-up/limit-down. Exchanges typically allow securities to rise or fall by a set percentage but if the stock moves as much as the threshold, trading is suspended to prevent an avalanche of buy or sell orders from creating more extreme price moves