We've suggested recently that price bands--that is, the limit up/limit down proposal from the SEC--seems destined to be embraced in some form or another, as a way to correct some of the downsides of circuit breakers.

But we are seeing more critics making their views known. For example, the CME, which certainly has experience in this area, has pointed out that the proposal should perhaps do a better job with ETF prices and with the individual components of ETFs.

Now comes some very interesting criticism from Nanex. Recall that Nanex made a name for itself the wake of the May 6, 2010 Flash Crash with some very interesting commentary and analysis about the whole incident. It's analysis of cancelled quotes ended up being very influential and media-genic. Recall the "crop circles" analysis. Nanex has four criticisms, enumerate to Traders magazine.

"First, the determination of the average price necessary to calculate price bands will require too much computing power." Nanex recommends using an exponential moving average, or one that assigns greater weight to the latest prices. Second, because different systems are used by exchanges to process quotes and trades, the two are often out of sync."  Nanex recommends basing calculations on quotes only. "Third, the definition of 'NBBO' is unclear because exchanges rely on their own calculations of NBBO, not the one defined by Regulation NMS." Nanex would like the SEC to clarify the issue. "Finally, (Nanex) predicts delays from the securities industry processors will result in latency arbitrage trading by those with the fastest machines."

The comments have been exceedingly interesting, and it will be fun to see how the SEC responds. Some tweaks are in order.

For more:
- here's the article

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What to make of limit up/limit down plans?  
Did the markets dodge another Flash Crash?  
SEC doubts quote stuffing allegations