March 13, 2020 / 5:37 PM / 22 days ago

Nasdaq adjusts stock reopening procedure after coronavirus volatility

NEW YORK, March 13 (Reuters) - Nasdaq Inc is tweaking the process used to reopen following market-wide trading halts to help make the process more orderly after stocks plunged this week over concerns about the coronavirus, according to a regulatory filing.

Market-wide circuit breakers were triggered on Monday and Thursday when the S&P 500 plunged 7% shortly after the open as investors tried to assess the impact the coronavirus pandemic would have on the global economy. All U.S. stock trading was paused for 15 minutes, giving investors time to reflect on the moves, before resuming.

It was the first time market-wide trading halts, designed to dampen drastic market declines, were triggered since they were introduced after the Black Monday crash of 1987. (Factbox on circuit breakers: reut.rs/2Q3Kp3r)

Currently, when trading is halted, Nasdaq gives brokers a five-minute window in the latter part of the 15-minute pause to enter orders in the stocks it lists, for the reopen. If there is a big imbalance between buy and sell orders in a Nasdaq-listed security that would create a volatile reopening, trading is paused for an additional minute.

Nasdaq now plans to give traders the full 15 minutes of the trading pause to enter quotes and orders, while also giving them visibility into the amount of buy versus sell orders during that time, with the aim of attracting offsetting interest in the case of an order imbalance, the March 12 filing to the U.S. Securities and Exchange Commission said.

Traders would also be able to see the reference price Nasdaq intends to use in calculating volatility collars for the reopening.

If there is an order imbalance and the price of the stock is outside the reference price by 5% on either side at the end of the 15-minute period, the stock would be paused for an additional five minutes, and the reference price would be adjusted. That process would be repeated until there is no order imbalance, and the stock would resume trading.

“The Exchange believes that the proposed changes would promote price formation and provide a more consistent re-opening process for members and investors following such trading halts,” Nasdaq said.

Nasdaq plans to implement the changes in April. (Reporting by John McCrank; Editing by Tom Brown)

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