* SEC's 'circuit breaker' pilot program ends Dec. 10
* CFTC eyes disruptive market practices, mulls rules
* U.S. regulators under pressure to act
* Investor view of fast trading negative-former CFTC chief (Adds comments from industry, SEC)
By Christopher Doering and Rachelle Younglai
WASHINGTON, Nov 5 (Reuters) - U.S. securities regulators are close to approving a plan to ensure markets remain liquid even in times of crisis, the chairman of the Securities and Exchange Commission said on Friday.
At a meeting to discuss the May 6 "flash crash" that sent the Dow Jones industrial average into a brief 700-point freefall, SEC chief Mary Schapiro and other regulators were zeroing in on new rules to bolster the integrity of markets.
The SEC will soon approve a plan that would effectively eliminate stub quotes or quotes that are priced well off the public price of a stock.
"It could be any day," Schapiro told reporters after a meeting between the SEC, fellow market regulator the Commodity Futures Trading Commission, and their advisory panel.
The 20-minute market crash rattled investors already unhinged by the financial crisis.
The SEC acted with uncharacteristic speed and in June rolled out a temporary "circuit breaker" program to give a company's stock a reprieve from trading if it was plunging uncontrollably.
The circuit breaker has been triggered about a dozen times, and regulators are gleaning information to develop the next generation of circuit breakers. The current program ends Dec. 10.
The SEC is focusing on "limit up/limit down" levels, which would set temporary price ceilings and floors for single stocks and could slow big price changes without stopping trading.
But ultimately regulators want to get to the heart of erroneous trades.
"Part of what our approach has been ... is to narrow or eliminate the circumstances in which you'd have erroneous trades because that seems to be the real policy objective in the first place," said Robert Cook, director of the SEC's trading and markets division.
REGULATORS UNDER PRESSURE
A report by the SEC and the U.S. Commodity Futures Trading Commission said a $4.1 billion sale of e-mini futures contracts by a mutual fund identified by media as Kansas City-based Waddell & Reed Financial contributed to the flash crash.
Although the government review does not blame high-frequency traders, the SEC and CFTC are under pressure to rein in the rapid traders, who use computer-driven algorithms to quickly create and execute trades.
"I think investor confidence is affected by the perception that high-frequency traders have unfair access to markets and market information," said Brooksley Born, a former CFTC chairman and a member of the flash crash advisory panel.
Born said regulators should look at this carefully. If rapid traders have advantages "they should also have some responsibilities," she said.
The flash crash advisory committee is composed of former and current regulators, financial players and a top economist. The panel was expected to discuss potential recommendations and give the regulators justification to tinker further with market rules. But the panel is still formulating recommendations.
Bart Chilton, a CFTC commissioner, told Reuters, "We need a team of experts at regulatory agencies that give, at the least, a quick look-see at robotic algorithmic programs to determine if there is the capacity to roil markets."
Market participants have criticized regulators review of the flash crash and are wary of potential new rules.
There may well be a range of trading practices that should be prevented, Craig Donohue, chief executive of CME Group Inc, which runs the New York Mercantile Exchange.
"But there are in fact a wide range of legitimate market practices that people employ which are sometimes called into question, and I'm not sure why," he said in a Thursday interview.
The SEC is still considering a new marketwide circuit breaker to temporarily pause trading if a market is in crisis.
Chilton said "ratcheting down circuit breaker trigger levels" would improve the harmonization between the securities and futures markets and reduce the opportunities for the kind of arbitrage that "fuel-injected the flash crash price cascade." (Additional reporting by Jonathan Spicer and Ann Saphir in Chicago. Editing by Tim Dobbyn, John Wallace and Jackie Frank)