The head of the BlackRock product team for exchange-traded funds in the United States urged the Securities and Exchange Commission and Commodity Futures Trading Commission to establish circuit breakers across all exchanges that were uniform for both stocks and ETFs.

Noel Archard, a managing director at investment adviser BlackRock in charge of its iShares ETF business, told a joint advisory committee of the SEC and CFTC that is addressing issues raised by the May 6 Flash Crash that reforms should include:

  • Uniform “circuit breakers” for stocks and ETFs across all exchanges,
  • Exchange trade error cancellation rules which are less arbitrary and more transparent,
  • Clearer guidelines for inter-market order routing rules,
  • A replacmeent of “stop loss” orders with “stop loss limit” orders to specify a limit price, and and
  • Expanding the role of lead market makers to ensure orderly market functioning.

ETFs have become widely accepted investment vehicles for both institutional and retail investors, Archard noted. There are currently 985 exchange traded products available in the US market with $797 billion in assets invested. They represent 30% of the total volume traded on national exchanges, he said.
And a recent BlackRock iShares survey of financial advisors called the ‘Flash Crash’ Perceptions Study identified ETFs as the best investment vehicles to navigate a volatile market environment followed by bonds and mutual funds.

The survey revealed that the majority of advisors were minimally impacted by the market disruption, and they believe that market structure issues, such as an overreliance on computer systems and some types of high frequency trading, were the primary drivers of the crash.

The SEC on June 10 approved rules which require national exchanges to pause trading in Standard & Poor's 500 stocks when they experience a 10 percent change in price over a five-minute period, SEC chairman Mary L. Schapiro noted.

"This pause, currently applied on a pilot basis, gives the markets the opportunity to attract new trading interest in an affected stock, establish a reasonable market price, and resume trading in a fair and orderly fashion,'' she said.

The breaker policy may soon get extended to ETFs.

In June, the SEC published for comment proposals by the exchanges and the Financial Industry Regulatory Authority to expand the program to include all stocks listed in the Russell 1000 Index, as well as 344 specified exchange traded funds.

Comments on the proposal are being reviewed and Schapiro said "I hope we will have approval of this phase of circuit breakers soon."

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