WASHINGTON - The Securities and Exchange Commission said Tuesday that it would temporarily institute circuit breakers on all the stocks in the Standard & Poor's 500-stock index after the huge market gyrations on May 6.

The circuit breakers will pause trading in those stocks for five minutes if the price moves by 10 percent or more in a five-minute period. The trial run will begin after a 10-day comment period and will last through Dec. 10, the commission said. The circuit breakers will apply both to rising and falling stock prices.

But in a separate report, the S.E.C. and the Commodity Futures Trading Commission said that they had not been able to pinpoint the cause of the sharp market decline that shook investors and markets two weeks ago.

Generally, the agencies said, the drop was caused by traders stepping back from the market and refusing to buy or sell, in both the stock and futures markets. The government found that there was also a heavy reliance by investors on automated orders to sell at the market price once stock prices had declined by a certain amount. Further, there were different rules on different exchanges about when trading is automatically slowed or stopped.

The agencies said they had found no evidence that the market decline was caused by so-called fat finger trading errors, or by computer hacking or terrorist activity. They added, however, "we cannot completely rule out these possibilities."

The S.E.C. said it worked with the national securities exchanges and the Financial Industry Regulatory Authority to shape the new rules. The rules require approval by the five-member commission after the 10-day comment period. After the trial, the exchanges will re-evaluate the trading curbs and perhaps expand them to all stocks permanently.

"We continue to believe that the market disruption of May 6 was exacerbated by disparate trading rules and conventions across the exchanges," Mary L. Schapiro, the S.E.C. chairwoman, said Tuesday. "As such, I believe it is important that all the exchanges quickly reached consensus on a set of uniform circuit breakers that would be triggered when needed."

David Fuller's view Obviously stock exchanges need circuit breakers, something that the old system of Specialists handling individual stocks on the NYSE used to implement. I would also favour the reintroduction of the old Uptick Rule on short selling, in some form compatible with electronic trading. I have often advocated this since the SEC, with disasterous timing in mid-2007, yielded to lobbying from investment banks and some hedge funds by scrapping the Uptick Rule on short selling which had served us well since 1934. (Search this site under Uptick Rule.)


Obviously an Uptick Rule will not prevent bear markets, nor should it. However it would deter pyramid selling and slow the kind of meltdown seen on May 6th. Surely part of the SEC's responsibility is to help maintain orderly markets. Some traders do not want any legislation that might restrain bear raids but that myopic view will drive away investors and impede the formation of capital which is a stock market's primary purpose.