May 20, 2010
As expected, the market is acting as if it wants to crash, despite the improving fundamentals in the economy.
The SEC has been slow in addressing the risks created by dark pools, selling on the downtick (in futures, ETFs, options), naked short selling via the use of derivatives.
The decline in the stock market, if not addressed, will generate further selling. And then, the decline will endanger the economy, as wealth evaporates.
Uncontrolled execution speed equals rising volatility.
In addition to the reproting of large positions, a broad emergency market circuit breakers (for both up and down moves) need to be installed for a period such as ninety days to calm the market. This measure can also be enhanced or modified in the future.
Please allow me to offer the following suggestions. Looking from a viewpoint of an ordinary investor, the SEC could consider a series of 2 percent circuit breakers for each day. Every time a circuit breaker is triggered, a 15-minute timeout for all exchanges (including options and futures) is required to slow down trading and to replenish liquidity. After the third circuit breaker is triggered, a one-hour timeout or the rest-of-the-day timeout for all market is needed.
The next day will start afresh for all circuit breakers.
Finally, the SEC needs to discount the ideas offered by the brokers and dealers and their paid advocates. Most of their suggestions are inconsistent with a sound, stable financial market for the long term.
Thank you for your work to protect the small investors.