(Bloomberg) -- BlackRock Inc., the world’s biggest assetmanager, has its own remedy for days of extraordinary volatility inthe U.S. equity market: Shut it down.

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Among the fund company’s suggestions: The entire $23 trillionmarket should automatically come to a halt if a certain number ofshares stop trading, giving traders time to regroup on a wild day,according to BlackRock.

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Tweaking the rules on halts and making all stock openingselectronic are among other ideas in a paper published Wednesday bythe firm.

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BlackRock’s proposals come as money managers talk withmarket-makers and stock exchanges to identify what happened amidthe market turmoil on Aug. 24 and how toprevent a repeat.

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Trading that day was disrupted by delayed openings, more than1,000 halts, and wild price swings. The fund company believes thatmany of its recommendations, published Wednesday, can be adoptedwith a minimum of fuss.

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"They’re all very doable changes without a whole lot of magic,"Barbara Novick, co-vice chairman of BlackRock, said in aninterview. "I don’t think they’re going to be contentious. I don’tthink they’re going to be difficult."

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Ongoing talks

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BlackRock is among several asset managers, includingVanguard Group Inc. and State StreetCorp., that in recent weeks held discussions with marketparticipants about the events of Aug. 24, people with directknowledge of the matter told Bloomberg News.

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The talks highlighted factors including the use of so-calledstop orders by investors, the role of market makers in pricingETF shares, and narrow price bandsused by the NYSE Arca exchange for opening securities, said thepeople.

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The issues were so widespread that about one in fiveexchange-traded products were halted during that day, according toBlackRock.

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The talks between ETF issuers and traders and exchanges lookedat the role of market makers in pricing ETF shares when someunderlying stocks weren’t open or were seeing extreme price moves.Ways to better calculate an ETF’s share price amid turmoil havebeen discussed.

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The BlackRock paper said that a quarter of the stocks in theStandard & Poor’s 500 Index hadn’t opened by 9:40 a.m. on Aug.24, 10 minutes after the start of trading.

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BlackRock’s Novick suggested that in situations where a chunk ofthe stocks that make up the main index are closed, halting theentire market might be a good idea.

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The wildest fluctuations on a bad day could be limited if acircuit breaker stopped all trading, she said.

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“In that scenario, you’d rather have had a market-wide halt toget everything back together than not have one,” said Novick.

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Wednesday’s paper says that further work is needed to determinethe number of individual stock halts that would automaticallytrigger such a pause.

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BlackRock’s prescription conflicts with anything offered so farby regulators.

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Speaking last week at an industry conference in Washington,Stephen Luparello of the U.S. Securities and Exchange Commissionsaid the conditions on Aug. 24 didn’t justify a market-widehalt.

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“People were not pulling out of the market because they wereuncertain they were getting real-time information,” Luparello, theSEC’s director of trading and markets, told the Security TradersAssociation event. “The extent to which a pause to allow people toget a greater level of certainty around data -- that need was, Idon’t think, there. So in that sense it was good we averted havinga market-wide halt.”

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Limit-up/limit-down

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The effort to publicly address some of the issues that plaguedthe market has been welcomed by market participants.

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“Blackrock’s leadership in helping avoid that kind ofexchange-traded products volatility, especially around liquidityprovision, is critical,” said Bill Harts, chief executive officerof Modern Markets Initiative, an industry group for high-speedtraders. “The paper imparts a solid understanding of marketstructure and the role of principal trading firms in ETPmarkets.”

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The report suggests tweaking the system underlying tradinghalts, called limit-up/limit-down.

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Exchanges typically allow securities to rise or fall by a setpercentage but if the stock moves as much as the threshold, tradingis suspended to prevent an avalanche of buy or sell ordersfrom creating more extreme price moves.

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At the moment, the limit-up/limit-down price bands doublein the first 15 minutes and the last 25 minutes of the trading day,but BlackRock is calling for uniform thresholds throughout theday.

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“We believe that this doubling is inconsistent with theobjective to address severe price volatility, as the open isprecisely the time of day when volatility is greatest and firmercontrols are needed,” said the paper.

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Further work

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BlackRock also urged regulators to consider making marketopening procedures fully electronic.

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While the New York Stock Exchange’s hybrid model, in which humantraders on the floor play a role, works in normal circumstances,BlackRock said, "it may have inadvertently contributed to delayedopens and heightened market uncertainty" on Aug. 24.

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Among other concerns are the widespread use of stop orders byretail investors, which many on Wall Street believe contributed tothe volatility.

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Two people familiar with the matter said there have beendiscussions with brokers that offer stop orders about educatingtheir clients on how to use them.

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While stop orders sound like they can protect an investor, theyactually send an instruction to an exchange to execute a tradeimmediately at any price, commonly known as a market order.

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In volatile markets, that can mean orders to sell securities asprices are plunging.

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Data from NYSE show that it had nine times the number of marketorders on Aug. 24 compared with an average day. Market orders as apercent of executed volume were four times higher than usual.

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“Excessive use of market and stop-loss orders that seek‘liquidity at any price’ inflamed the situation,” said theBlackRock paper, which recommended investors use limit ordersinstead.

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Exchange action

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Exchanges are likely to be receptive to today’s proposals givenBlackRock’s position as an asset manager, said Rich Repetto,an analyst at Sandler O’Neill & Partners LP.

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“Normally the exchanges listen very much to what the buy sidehas to say,” he said in a phone interview. “Generally they’re notviewed as competitors so they’re open to working together to comeup with the best solutions.”

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Some have already been taking steps. Stacey Cunningham, chiefoperating officer at NYSE Group Inc., a unit of IntercontinentalExchange Inc., said last month that it has hired a consultant toreview how ETFs trade on the company’s markets, including lookingat trading halts.

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The effort will also try to assess whether brokers need betterincentives to keep trading when markets turn choppy, she said. NYSEArca on Sept. 4 filed with its regulator to widen the price bandsit uses at the market open.

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Nasdaq Inc. declared its backing for BlackRock’s effort afterthe paper’s publication.

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“We are supportive of many of the recommendations made in thereport,” Joseph Christinat, a spokesman, said by phone.“Nasdaq opens every security, every day at 9:30am New York time, sowe are also absolutely steadfast about ensuring the timeliness andtransparency of the U.S. equity markets, for the benefit of allinvestors.‎”

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Randy Williams, a spokesman at Bats Global Markets Inc.,declined to comment on the BlackRock proposals. Sara Rich of NYSEGroup Inc. didn’t respond to requests for comment.

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“This really is a market structure issue for ETPs,” said JamesAngel, associate professor of finance at Georgetown University, ina phone interview. “Unless the industry fixes these things quickly,it will happen again.”

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