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Amid the debate over how to prevent a recurrence of Aug. 24 2015, a trading day marked by delayed openings, more than 1,000 halts and wild price swings (more than $1 trillion in value was erased from the U.S. stock market that day). The ETF industry, as best as you can define it, has written an open letter to the SEC encouraging it to direct exchanges to harmonize the reopening of securities that have been in a so-called limit up/limit down halt, and clarify and align rules around clearly erroneous trades.
August 24, 2015 was a bad day. I’ve written about it here extensively. It was a bad day largely because of inconsistencies between how different exchanges handled big swings in securities (the Limit Up/Limit Down circuit breakers) and how securities were re-opened after those breakers were hit. Those inconsistencies are simply a reflection of the fact that the U.S. market is incredibly fragmented, and regulations have allowed that fragmentation to create big differences between trading venues. At the core, the letter suggests just a handful of things: Harmonize how LULD is handled across all exchanges Collapse the re-opening of a security to the listing exchange after a halt Publish all order-imbalances during re-opening auctions Define any trade outside of the LULD bands as clearly erroneous
