Exchanges to Coordinate Stock Trading Halts
U.S. stock exchanges, reacting to the recent dispute over trading in Corinthian Colleges Inc., said Tuesday that they would coordinate trading halts when there was “extraordinary market activity” in shares listed on Nasdaq.
The seven markets that trade Nasdaq stocks agreed that the electronic market may halt trading in a stock if a systems failure could not be resolved within five minutes of notifying other markets. The markets also agreed to coordinate on a dedicated phone line when there was unusual trading in a stock.
“It’s a way of improving communication and ensuring there is coordination,” said Dale Carlson, a spokesman for the Pacific Exchange in San Francisco, one of the seven markets.
The agreement is designed to prevent a repeat of the confused trading Dec. 5 in Santa Ana-based Corinthian Colleges. Nasdaq halted trading after a technical failure led to a 33% plunge in the stock.
Thirty-nine minutes before Nasdaq resumed trading in Corinthian’s shares, the Archipelago Exchange permitted trading as the price recovered. Nasdaq then canceled some trades made before the halt.
The cancellation meant those who bought near the low for Corinthian shares and later sold as they recovered, in effect, sold stock they didn’t own, wiping out what had been profitable trades.
The markets also agreed that within 15 minutes of a halt, the exchanges would try to indicate whether they planned to cancel trades, and would make that known before trading resumes.
“It’s a consensus for how these sorts of situations should be addressed in the future,” Carlson said.
Archipelago, which is regulated by the Pacific Exchange, later alleged that Nasdaq misused its regulatory authority in calling for the halt.
“We made a request [for the Securities and Exchange Commission] to make a formal investigation, and that stands,” Carlson said.
Robert Greifeld, Nasdaq’s chief executive, said in an interview last week that the exchange took the appropriate steps to protect investors.
The group is made of the American Stock Exchange, National Stock Exchange, the Chicago Stock Exchange, Nasdaq Stock Market, Philadelphia Stock Exchange, Boston Stock Exchange and the Archipelago Exchange/Pacific Exchange.
Nasdaq this month had asked the SEC for authority to impose trading halts across all markets.
The dedicated phone line, known as the “hoot ‘n’ holler” system, was put in place after the 1987 crash but seldom used, Carlson said.
