Testimony: Circuit Breakers

                                     TESTIMONY OF
                               ARTHUR LEVITT, CHAIRMAN,
                       U.S. SECURITIES AND EXCHANGE COMMISSION

                             CONCERNING CIRCUIT BREAKERS

                        BEFORE THE SUBCOMMITTEE ON SECURITIES
            OF THE SENATE COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS

                                   JANUARY 29, 1998

     Chairman Gramm, Senator Dodd, and Members of the Subcommittee:

          Thank you for the opportunity to discuss circuit breakers today.  We

     appreciate the keen interest that Congress takes in our nation’s capital

     markets, which are indisputably the best in the world.  We at the

     Commission work every day to protect the integrity of those markets and

     investors in those markets.  One of the most important features of U.S.

     financial markets is that they function efficiently and freely, even in

     times of extreme stress.  

          A decade ago, the securities and futures markets, in response to the

     most severe market drop in the history of our financial markets, introduced

     circuit breakers -- coordinated, cross-market trading halts intended to

     give investors and the markets a “breather” during the maelstrom of a steep

     market drop.<(1)>  Circuit breakers were intended to help avoid panic
                              

          <(1)>     Attached as Appendix A is a summary of the significant
                    measures that can be taken to protect the markets in
                    the event of severe declines.  The Commission has
                    authority to take a variety of measures in response to
                                                             (continued...)

                              ======END OF PAGE 1======

     and systemic breakdown, but only when the stress of a truly severe market

     drop prevented the financial markets from operating in a fair, orderly and

     efficient manner.

          The Commission believes that markets function best when they are

     unencumbered by artificial constraints like circuit breakers.  The strength

     of a free market is the underpinning of our financial system and, in fact,

     our economy.  Simply put, markets operate best when they are open.  That is

     not to say that there can be no justification for circuit breakers.  On

     those rare, very rare, occasions when there may be systemic overload, it

     may be necessary to provide a short pause for participants to reassess

     market conditions.

          The circuit breakers have been triggered once -- during the market

     events of October 27, 1997.  The drop that day, however, did not represent

     the type of extraordinary decline that circuit breakers were meant to

     brake.  When the circuit breakers were triggered, the markets were working

     efficiently, and there was no threat of an imminent market breakdown.

     Shortly thereafter, representatives of the securities and futures markets,

     the Commodity Futures Trading Commission (“CFTC”) and the Commission met to

     discuss experiences with the triggering of circuit breakers on October 27.

     A quick consensus was reached to raise the levels at which the circuit

     breakers are triggered to better reflect a severe market decline, given the

     increase in market levels since 1988.  Commission staff also coordinated
                              

          <(1)>(...continued)
                    extreme market volatility and other emergency
                    circumstances.  

                              ======END OF PAGE 2======

     several meetings and telephone calls with the self-regulatory organizations

     (“SROs”) and the CFTC to discuss additional modifications to the circuit

     breaker rules.

          Today’s hearing is timely because the New York Stock Exchange (“NYSE”)

     is about to bring to its Board significant proposed changes to the

     operation of its current circuit breaker rules.  The Commission recognizes

     that the NYSE, as well as the other securities and futures SROs, need to

     take swift, coordinated action to ensure that circuit breaker rules more

     effectively serve their purpose -- to give investors and the markets an

     opportunity to regroup when the markets experience rapid declines.

     I.  Overview

          Consistent with our commitment to free and open financial markets, the

     Commission resists any effort to impede the markets’ efficient operation.

     The Commission prefers that the securities markets operate without

     unnecessary restraints.  For this reason, the Commission believes that

     mechanisms like circuit breakers, that impede the natural functioning of

     markets, should only be imposed in the most extreme circumstances.  For

     circuit breakers to be of any value, they should be used only on those rare

     occasions when the market decline is of historic proportions and, as a

     result, the markets and supporting technology are headed for disarray.

          --  Circuit breakers should be triggered only in extraordinary

     circumstances.  Circuit breakers were meant, from their inception, to be

     triggered only in truly extraordinary circumstances -- i.e., a severe

                              ======END OF PAGE 3======

     market decline when the prices have dropped so dramatically that liquidity

     and credit dry up, and when prices threaten to cascade in a panic-driven

     spiral.

          As long as the markets are closed or have the potential to close

     early, there is uncertainty.  Uncertainty for individual investors leads to

     confusion.  They cannot rely on the market being open until 4:00 p.m. in

     deciding when to place their orders on a day when the market is falling.

     Uncertainty for mutual funds, which cannot calculate daily net asset value

     without a market from which to price, is also of concern.  The absence of

     net asset values also could undermine general investor confidence in our

     nation’s financial markets.  This underscores the importance of thinking

     very hard before concluding that markets should close early for the day.

          --  The current circuit breaker trigger points should be raised.

     There is general consensus that the current levels for the circuit breakers

     should be raised.  Without such a change, circuit breakers threaten to

     interfere with the exceptional resilience of the U.S. financial markets.

     The Commission is very interested in proposals to change the limits from a

     fixed point amount to a point amount based upon a percentage drop in the

     Dow Jones Industrial Average (“DJIA”)<(2)> and to reevaluate these

     limits periodically.  The exchanges currently are discussing whether to

     raise circuit breaker triggers to 10 percent for the first halt and 20

          <(2)>     “Dow Jones Industrial Average” is a service mark of Dow
                    Jones & Company, Inc.  These percentages would be
                    converted at the end of each year into point totals
                    based on market closing prices over a fixed period.  

                              ======END OF PAGE 4======

     percent for the second halt.  If circuit breakers had been in place at

     these levels since 1915 (when the DJIA was created), they would have been

     triggered by only two market events -- the “crash” of October 1929 and the

     “break” of October 1987 (as shown in the bar graph at Appendix

     B).<(3)>  These two occurrences involved the type of truly

     extraordinary circumstances that were meant to trigger circuit breakers.

          --  The markets should have an orderly close every day.   Our nation’s

     financial markets have on many occasions reaffirmed their preeminence by

     weathering, among other things, wars, natural disasters, and severe market

     drops, without closing.  With this in mind, we are discussing with the

     markets and the CFTC if and how to resume trading after the triggering of a

     20 percent circuit breaker.  The Commission would prefer some attempt to

     reopen markets closed by circuit breakers, even if the circuit breakers are

     triggered late in the trading day.  Individual investors have come to rely

     on the markets being open until 4:00 p.m., and make their investment

     decisions on that basis.  If an early close prevents investors from making

     their trades, they may begin to lose confidence in the U.S. markets.  It

     appears, however, that the securities, options and futures exchanges

     believe that after a drop of 20 percent, reopening in an orderly fashion

     would be difficult.  This point is still under discussion and should be

     resolved shortly.  On the other hand, if a 10 percent circuit breaker were

     triggered, the Commission would expect the markets to reopen in an orderly

          <(3)>     Although the graph at Appendix B shows three separate
                    days on which the circuit breakers would have been
                    triggered, the crash of 1929 occurred over two days,
                    October 28 and October 29, 1929.

                              ======END OF PAGE 5======

     manner and, if possible, to resume trading until the regular end of the

     trading day, when closing prices could be established.  

          -- The international financial markets look to the U.S. financial

     markets.  The world today looks to our nation’s financial markets for

     leadership.  Closing these markets at any time, even for a limited period,

     risks creating an unfounded impression that the U.S. financial markets

     cannot function.  For this reason, it is that much more important that

     circuit breakers, which are designed to provide only a “pause” in trading,

     be triggered only in extraordinary circumstances.

          -- Advances in technology will require us to revisit periodically the

     circuit breaker rules.  Technological advances enable our nation’s

     financial markets to handle record volume trading days -- a billion shares

     have traded hands over the NYSE in one day without a glitch.  Technological

     advances also assist in the wide dissemination of market information, so

     more investors can make informed decisions.  Technological advances are

     changing the financial markets.  The financial markets cannot reap the

     rewards of these technological advances and be held back by static circuit

     breaker rules, however.  Thus, the Commission will continue to encourage

     the exchanges to revisit periodically their circuit breaker rules and to

     make the changes necessary to keep our nation’s capital markets the most

     efficient, most liquid, and most diverse in the world.

     II.  Background

                              ======END OF PAGE 6======

          Circuit breakers were developed by the securities and stock index

     futures markets in response to recommendations made by the President’s

     Working Group on Financial Markets (“Working Group”) to address the market

     break of October 1987, when the DJIA lost 508 points (almost 23 percent of

     its value).<(4)>  Securities, options and futures exchanges adopted

     the Working Group’s recommendation and created circuit breaker programs.

     The Commission initially approved the programs of the securities exchanges

     on a pilot basis in 1988.<(5)>

          <(4)>     The Working Group is comprised of representatives from
                    the Commission, the CFTC, the Treasury and the Federal
                    Reserve Board.  In 1988, the Working Group recommended
                    coordinated trading halts and reopenings during large,
                    rapid market declines.  This group suggested specific
                    circuit breaker trigger levels of approximately 12
                    percent and 20 percent of the DJIA, and recommended
                    quarterly review of the levels to determine if they
                    needed to be altered to reflect changes in the DJIA.
                    See Working Group on Financial Markets, Interim Report
                    of the Working Group on Financial Markets, May 16,
                    1988, at Appendix A.

               After the October 1987 market break, President Reagan
               appointed a task force to review the events of the market
               break.  The task force recommended the implementation of
               circuit breakers to coordinate the reactions of the stock,
               futures, and options markets during times of market stress.
               See Presidential Task Force on Market Mechanisms, Report of
               the Presidential Task Force on Market Mechanisms, Jan. 1988,
               at 66 (“Brady Report”).  Like the Commission and the Working
               Group, the task force concluded that coherent, coordinated
               circuit breaker mechanisms were preferable to “circuit
               breakers of chaos and system failure.”  Brady Report at 66.

          <(5)>     The original pilot programs have been renewed and
                    modified a number of times since 1988.  See Exchange
                    Act Release No. 26198 (Oct. 19, 1988), 53 Fed. Reg.
                    41637 (Oct. 24, 1988); Exchange Act Release No. 37457
                    (July 19, 1996), 61 Fed. Reg. 39176 (July 26, 1996);
                    Exchange Act Release No. 38221 (Jan. 31, 1997), 62 Fed.
                    Reg. 5871 (Feb. 7, 1997).

                                                             (continued...)

                              ======END OF PAGE 7======

          In approving the circuit breaker pilot, the Commission hoped that the

     existence of circuit breakers would provide the markets with a chance to

     “pause” during a severe decline along the lines of October 1987, affording

     market participants and regulators time to assess market conditions and

     potential systemic stress.<(6)>  At that time, then-Commission

     Chairman David Ruder testified that circuit breakers were a way to “calm

     the fear and panic that occurs when there are steep declines in the stock

     markets.”<(7)>  The Commission believed that the purpose of the

     circuit breakers was not to prevent the markets from adjusting prices.

     Rather, it was to restore an equilibrium between buyers and sellers, to

     provide the opportunity for increased information flow, and to create a

          <(5)>(...continued)
               The options, futures and other securities exchanges have
               adopted rules that are consistent with the circuit breaker
               rules of the NYSE.  The National Association of Securities
               Dealers (“NASD”) will halt trading on the Nasdaq Stock
               Market and trading in the over-the-counter market when the
               circuit breakers are triggered.  Thus, when the NYSE circuit
               breakers are triggered, all the domestic financial markets
               effectively are closed.

          <(6)>     Exchange Act Release No. 26198 (Oct. 19, 1988), 53 Fed.
                    Reg. 41637 (Oct. 24, 1988); Testimony of David S.
                    Ruder, Chairman, U.S. Securities and Exchange
                    Commission, Concerning the Working Group on Financial
                    Markets, Before the Subcomm. on Telecommunications and
                    Finance of the House Comm. on Energy and Commerce (May
                    19, 1988).

          <(7)>     Statement of David S. Ruder, Chairman, U.S. Securities
                    and Exchange Commission, Concerning the Working Group
                    on Financial Markets, Before the Senate Comm. on
                    Banking, Housing, and Urban Affairs (May 24, 1988).

                              ======END OF PAGE 8======

     better opportunity for market participants to assess information during

     times of extreme market movements.<(8)>  

          On October 19, 1988, the DJIA was at 2137.  Under the pilot programs

     approved at that time, a circuit breaker would have halted trading for one

     hour when the DJIA dropped 250 points (approximately 12 percent) from the

     previous day s close.  Trading would have stopped for two hours when the

     DJIA reached 400 points (approximately 19 percent) below the previous day s

     close.  These were extremely steep declines, based on the DJIA at that

     time.

          Since then, however, the dramatic rise in the DJIA has created the

     possibility that existing circuit breakers will trigger during less than

     extraordinary market declines.  For this reason, in 1995 and 1996, the

     Commission and its staff urged the SROs to raise these levels as quickly as

     possible.<(9)>  The SROs agreed to increase the triggers for the
                              

          <(8)>     Exchange Act Release No. 26198 (Oct. 19, 1988), 53 Fed.
                    Reg. 41637 (Oct. 24, 1988); see also Statement of David
                    S. Ruder, Chairman, U.S. Securities and Exchange
                    Commission, Concerning the Working Group on Financial
                    Markets, Before the Subcomm. on Telecommunications and
                    Finance of the House Comm. on Energy and Commerce (May
                    19, 1988).

          <(9)>     See Exchange Act Release No. 38221 (Jan. 31, 1997), 62
                    Fed. Reg. 5871 (Feb. 7, 1997); Exchange Act Release No.
                    37890 (Oct. 29, 1996), 61 Fed. Reg. 56983 (Nov. 5,
                    1996); see also, Greg Ip, “The 1987 Market Peak and
                    Crash; Ten Years After: Safeguards Make Crisis Less
                    Likely,” Wall St. J., Aug. 25, 1997, at C1; Patrick
                    McGeehan, “Big Board Plan: No Shut Down Until 350
                    Points,” Wall St. J., Dec. 6, 1996, at C1; Patrick
                    McGeehan, “SEC, Big Board Reconsider ‘Circuit Breakers’
                    That Almost Shut Down Trading Last Friday,” Wall St.
                    J., Mar. 15, 1996, at C1.

                              ======END OF PAGE 9======

     circuit breakers from 250 points to 350 points and from 400 points to 550

     points, representing a 5.4 percent and 8.5 percent decline, respectively,

     in the DJIA at that time.  The Commission approved these new triggers

     because they were a 40 percent increase over the outdated 1988 triggers,

     but they remain significantly lower on a percentage basis than the circuit

     breakers approved in 1988.<(10)>   

          Circuit breakers were triggered for the first time on October 27,

     1997.  The first halt came at 2:36 p.m. and the second halt came at 3:30

     p.m., closing the markets for the day.  In total, however, the markets fell

     only a little more than 7 percent that day.  There was general agreement

     that such a drop did not represent the type of extraordinary decline that

     circuit breakers were meant to brake.<(11)>  

     III.  Circuit Breaker Trigger Levels

          <(10)>    Exchange Act Release No. 38221 (Jan. 31, 1997), 62 Fed.
                    Reg. 5871 (Feb. 7, 1997).  The Commission also stated
                    that, while the new triggers were more appropriate, the
                    exchanges should continue to monitor and reevaluate the
                    criteria for determining when a market event was severe
                    enough to warrant a circuit breaker.

          <(11)>    Since October 27, 1997, a debate has emerged as to
                    whether the circuit breakers acted as a magnet drawing
                    the markets down toward the second trigger and
                    therefore toward the closing of the markets for the
                    day, or whether they acted as a stabilizing force in
                    preventing a true market meltdown.  See, e.g., Greg Ip
                    and Michael Schroeder, “Trade Halt Questioned by
                    Levitt: First-Ever Use Cited By Some for Turmoil,” Wall
                    St. J., Oct. 30, 1997, at C1; Greg Ip, “Bloody Monday:
                    Stocks Plummet 7% as Pros Seek Cover to Protect 1997
                    Gains,” Wall St. J., Oct. 28, 1997, at A1.

                              ======END OF PAGE 10======

          The market experience on October 27, 1997 has reinforced concerns that

     the present circuit breaker triggers are much too low as a result of the

     exceptional increase in market levels since 1988.<(12)>  The

     Commission as a general matter does not favor market closings.  The

     Commission has always believed that as long as the markets are functioning

     efficiently, they should remain open.<(13)>  Unfortunately, however,

     the circuit breakers in place today will trigger on days with less than

     extraordinary trading, when markets are actually functioning efficiently,

     such as October 27, 1997.<(14)>  Hence, many of the SROs are

     considering readjusting circuit breaker triggers to reflect a 10 percent

     and 20 percent fall of the DJIA, similar to the circuit breakers originally

     approved in 1988.

          <(12)>    As previously noted, when established, the 250 point
                    circuit breakers would be triggered by a 12 percent
                    drop in the DJIA.  By July 1996, a 250 point drop in
                    the DJIA was only a 4.5 percent fall.  By January 1997,
                    250 points was 3.7 percent of the DJIA.  

          <(13)>    See, e.g., Greg Ip and Michael Schroeder, “Trade Halt
                    Questioned by Levitt: First-Ever Use Cited by Some for
                    Turmoil,” Wall St. J., Oct. 30, 1997, at C1;  Statement
                    of David S. Ruder, Chairman, U.S. Securities and
                    Exchange Commission, Concerning Responses to the
                    October Market Break, Before the House Comm. on
                    Agriculture (June 14, 1988); Statement of David S.
                    Ruder, Chairman, U.S. Securities and Exchange
                    Commission, Concerning the Working Group on Financial
                    Markets, Before the Subcomm. on Telecommunications and
                    Finance of the House Comm. on Energy and Commerce (May
                    19, 1988).

          <(14)>    The Commission staff currently is reviewing the events
                    of October 27, 1997.  The staff will consider, among
                    other things, the trading halts that occurred when the
                    circuit breakers were triggered.  Because this review
                    has not been completed, we cannot report to you at this
                    time on the staff’s findings.

                              ======END OF PAGE 11======

          Why move to circuit breaker triggers of 10 and 20 percent?  First, a

     move to a percentage-based calculation allows circuit breaker triggers to

     be reset each year to correspond with changes in the markets.  In addition,

     10 and 20 percent movements on a single day in a financial market of any

     size are very rare and dramatic.  This corresponds to our view that circuit

     breakers should be triggered only in extraordinary circumstances.

          The Commission believes that, even if adjusted, the circuit breaker

     triggers should be reevaluated periodically.  As described earlier, the

     securities, options and futures markets are very different from those

     existing in 1987.  For instance, on the day after the October 1987 market

     break, 608 million shares traded hands on the NYSE.  That volume, a record

     at that point, stretched the capacity of information, trading and

     settlement systems.  In contrast, on the day following the October 27, 1997

     market decline, the volume on the NYSE had doubled from October 1987, to

     1.2 billion shares, and the systems were not even close to being stretched,

     because of the existence of technology and technological capacity undreamt

     of in 1987.  In the future, economic developments, as well as new

     technologies, are certain to evolve that will permit the markets to grow

     and absorb even higher levels of activity.  For these reasons, it is

     important to reevaluate circuit breakers, their operation, and their

     trigger levels periodically to ensure that they are triggered only when

     necessary.

          The Commission appreciates the recent efforts of the securities,

     options and futures markets to reach consensus on circuit breaker trigger

                              ======END OF PAGE 12======

     levels.  We understand that next week the NYSE Board will consider

     fundamental changes to the NYSE circuit breaker rules to reflect a move to

     percentage-based circuit breakers.<(15)>

          If, however, at its February 5 meeting, the NYSE Board does not

     approve substantial increases in trigger levels, the Commission will

     consult with the CFTC to determine if regulatory measures are needed to

     raise circuit breaker trigger levels to resemble their original

     design.<(16)>  

     IV.  The Final Hour of Trading  

          <(15)>    Although the NYSE Board is expected to act on February
                    5, 1998 to approve readjustment of circuit breakers,
                    these changes will have to be coordinated with other
                    securities and futures markets.  Given the publication,
                    comment and approval requirements, coordination in this
                    effort will be paramount.  

               Because the current circuit breaker rules expire on January
               31, 1998, earlier this week the Commission approved an
               extension for those rules until the sooner of April 30, 1998
               or Commission and CFTC approval of new triggers.  During
               this extension, minor adjustments will be made to prevent an
               unnecessary market closing due to relatively low circuit
               breaker triggers.  Specifically, if the 350-point trigger is
               hit on or after 3:00 p.m., it is not implemented and the
               markets continue trading.  If the 550-point trigger is hit
               between 2:00 p.m. and 2:59 p.m., it will last only 30
               minutes, rather than 60 minutes.

          <(16)>    In addition to cross-market trading halt circuit
                    breakers, several other initiatives were developed
                    since 1988 to address significant market movements,
                    including the 50-point program trading collars imposed
                    by the NYSE under its Rule 80A, as summarized in
                    Appendix A.  The Commission believes that these
                    initiatives also are ripe for review, and has discussed
                    them in meetings with the SROs and the CFTC.

                              ======END OF PAGE 13======

          The application of circuit breakers during the last hour of the

     trading day raises several issues -- (1) should circuit breakers ever be

     triggered during the last hour of trading? (2) should the markets reopen if

     circuit breakers are triggered during the last hour of trading, and if so,

     is there a minimum time needed for markets to be open before closing for

     the day? (3) could the markets reopen in an orderly fashion after a drop of

     20 percent?

          Since 1934, Congress has charged the Commission with the

     responsibility to promote the operation of fair and orderly markets.  Those

     who favor suspending circuit breakers during the last hour of trading argue

     that an orderly close to the trading day is essential to allow completion

     of routine market activities in a fair way.  For example, if circuit

     breakers close the markets before 4:00 p.m., participants in the options

     and futures markets may be left without the ability to complete certain

     transactions and strategies, leaving them vulnerable to significant

     losses.<(17)>  On the other hand, the use of circuit breakers towards

     the end of a day with a significant drop could serve to stop the markets

     from spiralling out of control as they move towards 4:00 p.m.  Both sides

     argue in favor of fair and orderly markets.

          <(17)>    For instance, market participants may be unable to
                    unwind arbitrage positions.  While their futures or
                    options position may have expired, the early closing
                    due to circuit breakers could preclude the unwinding of
                    the stock leg of a position.  This could be
                    particularly troublesome on an expiration Friday.

                              ======END OF PAGE 14======

          Individual investors have come to rely on the markets being open until

     4:00 p.m., and make their investment decisions on that basis.  When an

     early close prevents investors from making their trades, resulting in

     investment decisions becoming colored by uncertainty, there is likely to

     follow erosion of investor confidence in the markets.  Another concern is

     the uncertainty created for mutual funds in the event of an early close due

     to a triggered circuit breaker.  Mutual funds cannot calculate daily net

     asset value without a market close from which to price.  The absence of net

     asset values for mutual funds also could undermine general investor

     confidence in the financial markets.<(18)>  This underscores the

     importance of thinking very hard before concluding that markets should

     close early for the day.

          If there is a day when the 20 percent circuit breaker is triggered,

     financial markets will be experiencing a drop of historic proportion.  The

     Commission recognizes that it may be difficult, if not impossible, to

     reopen the markets late in the day after a decline of 20 percent.

     Moreover, if a drop of 20 percent occurred, significant credit concerns

     could arise that would thwart the possibility of an orderly reopening.  On

     the other hand, the longer the financial markets are closed, the greater

     the possibility that reopening will be difficult.  

          <(18)>    See Letter from Matthew P. Fink, Pres., Investment Co.
                    Inst., to Arthur Levitt, Chairman, Securities and
                    Exchange Commission, Jan. 27, 1998 (“[C]losing the
                    markets early could be harmful to the over 60 million
                    mutual fund shareholders who have come to expect that
                    the markets will close at 4:00 p.m., and that orders
                    placed up until that time will get that day’s net asset
                    value.”).

                              ======END OF PAGE 15======

          These are all important concerns.  The exact details of early closings

     are being discussed by the SROs and CFTC and Commission staff at this time.

     V.  International Financial Markets Look to U.S. Markets

          The world’s financial markets look to the United States for leadership

     that comes from the strength of our nation’s markets.  Consequently,

     decisions concerning U.S. markets are not made in a vacuum.  One of our

     markets’ greatest strengths is that they operate unencumbered by artificial

     constraints --  they are free markets.  Therefore, it is important to keep

     in mind how the world’s financial markets will react if and when circuit

     breakers are triggered.  A mechanism intended to avoid panic and systemic

     breakdown cannot be allowed to create the mistaken impression that the U.S.

     financial markets no longer can function effectively.  It is extremely

     important, therefore, that circuit breaker rules be revised in such a way

     that any closing of U.S. financial markets is limited to the period

     necessary for regulators and market participants to assess market position

     and systemic stress.  This will reassure global markets that the U.S.

     financial markets remain strong.      

                              ======END OF PAGE 16======

     VI.  Advances in Technology

          The premier status of our nation’s financial markets today has been

     made possible in part by advances in market technology over the past ten

     years.  This technology is another reason that circuit breakers must be

     adjusted.  The markets ten years ago could not absorb half of the volume

     routinely handled by the markets today; the ability to clear and settle

     trades has become sophisticated in ways unimaginable ten years ago.

     Although circuit breaker triggers may move to 10 and 20 percent, future

     technologies are likely to further enhance the capacities of the financial

     markets.  This may permit these markets to perform in an orderly fashion,

     with even greater volume and speed, and may at some point permit circuit

     breaker triggers to be set even higher.    

          Technology enables the financial markets to process record numbers of

     transactions, to access massive amounts of information and to develop

     investment strategies that cross exchange boundaries.  Technology also is

     making the financial markets more global.  With this progress, circuit

     breakers, and other rules governing the markets, should continue to serve

     their intended purposes, and not “throw sand in the gears” of otherwise

     efficiently functioning markets.

     VII.  Conclusion

          As the markets continue to grow and change, the regulatory community

     must regularly review the protective measures that can be imposed when

     faced with potentially destabilizing market events.  Any mechanism

                              ======END OF PAGE 17======

     available must be scrutinized to determine whether it will achieve its

     intended goal with minimal market disruption.  The Commission believes that

     the current initiatives to modify the circuit breaker rules are an

     essential part of this process, and looks forward to working with you, our

     fellow regulators and representatives of the financial markets to produce

     the most effective, least intrusive, circuit breaker programs possible.

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