Finra's Ketchum: 'Shock absorbers' are a must

The U.S. brokerage industry’s top regulator, responding to yesterday’s market plunge, said Wall Street needs to be more vigilant in halting stock bids during periods of cascading share prices and called on exchanges and firms to impose more “shock absorbers” to slow trading. Brokerages need to “ensure that you don’t continuously feed in orders once markets have broken with respect to precipitous declines,” Financial Industry Regulatory Authority Chief Executive Officer Richard Ketchum said in a speech today. Ketchum suggested that traders be forced into “taking a break” when a stock plunges 15 percent to 20 percent during “an extraordinarily short time.” U.S. stocks, falling in reaction to Europe’s debt crisis, briefly erased more than $1 trillion in market value yesterday as waves of computerized trades exacerbated the rout. The Securities and Exchange Commission and Commodity Futures Trading Commission said in a joint statement after markets closed that they will examine “unusual trading” that contributed to the decline and report on their findings. The plunge demonstrates why brokerages must ensure they have adequate controls in place when allowing some trading clients to access exchanges directly, Ketchum said today, without concluding that such practices contributed to the drop. The SEC in January proposed banning brokers from giving customers unsupervised access.