Via Patrick Burn's excellent Protfolio Probe blog, come this facinating article by By Bill Alpert and Lisa Stryjewski from Barron's:

Just in the nick of time, it seems, stock exchanges have expanded a key safety mechanism aimed at preventing swoons like the May 2010 "flash crash," when the Dow bizarrely dropped almost 1,000 points in 20 minutes, then snapped back on extraordinary volume. As of last Monday, every stock listed in the U.S. is covered by its own circuit breaker designed to pause a stock's trading if it makes a sudden large move.

Already on the drawing board: the next generation of circuit breaker, which could be ready next year. The securities industry and regulators call this prospective system "limit up-limit down." But before installing this upgrade, they might want to gather more evidence on whether single-stock trading controls of any sort are effective safeguards against the sort of cascading pricing problems that caused the flash crash. Researchers from Yale teamed with Barron's to conduct a back-test of the proposed system on every listed stock trade from 2008 through 2010

Before getting to our analysis, we need to offer some background.

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