The Securities and Exchange Commission unveiled a long-awaited plan designed to protect the markets from volatile price swings following the May 6 flash crash.

The so-called limit up-limit down proposal, announced by the SEC on Tuesday, would require trades in U.S.-listed stocks to be executed within a range tied to recent prices.

If approved, it would replace existing single-stock circuit breakers that were implemented through a pilot program shortly after the flash crash. The circuit breakers halt trading in hundreds of stocks and ETFs when their price moves 10 percent or more during a rolling five-minute period.

The SEC has been working closely with the exchanges and the Financial Industry Regulatory Authority to come up with market structural fixes to prevent a repeat of the May 6 flash crash, which temporarily wiped out about $1 trillion in paper value in the stock market.

Upgrading our trading parameters will help our markets retain the confidence of investors and companies, said SEC Chairman Mary Schapiro in a statement.

The proposed new limit up-limit down plan, which has been in the pipeline now for awhile, would prevent listed securities from being traded outside of a specific price band.

It is meant to serve as a more sophisticated mechanism for addressing market volatility. Although the circuit breakers have helped, they have also been triggered by erroneous trades.

Most recently, the potential holes in the circuit breaker program were exposed after 10 new exchange-traded funds suffered their own mini flash crash last Thursday. The new ETFs were not covered by the circuit breakers and some of them fell by as much as 98 percent.

Nasdaq OMX Group Inc was forced to cancel the trades, and the incident raised concerns that the measures taken by the SEC since the flash crash were not enough to prevent extreme market movements.

Tuesday's proposed price band for the limit up-limit down proposal would be set at a percentage above and below the average price of the security over the preceding five-minute period, the SEC said.

For stocks that are currently covered by the existing circuit breakers, the plan sets the percentage at 5 percent. Other stocks not covered by circuit breakers would be subject to a 10 percent threshold.

The SEC said these percentage bands would be doubled in the opening and closing periods of the market, and broader bands would apply to stocks if they are valued below a $1.00.

If a stock is unable to trade within the designated price band for more than 15 seconds, a five-minute trading pause would kick in.

Traders on Tuesday had a mixed reaction upon hearing about the SEC's plan.

Stephen Massocca, a managing director at Wedbush, said the percentage thresholds for the limit up-limit down plan strike him as a bit narrow.

You would need a wider band than that. Overall, I don't see anything dramatically different here, he said.

Others, however, said the plan will be a help.

These rules, whether good or bad, will bring investors' confidence back to the market, said Larry Peruzzi, a senior equity trader at Cabrera Capital Markets.

The SEC said that the exchanges and FINRA are asking the agency to approve a one-year pilot program for the limit up-limit down plan. The public will get 21 days to comment on it.

Separately, the agency also is continuing to work with the Commodity Futures Trading Commission and the markets to recalibrate market-wide circuit breakers that apply across securities and futures.

(Reporting by Sarah N. Lynch, Additional reporting by Angela Moon, Rodrigo Campos and Jonathan Spicer; editing by Bernard Orr; editing by Carol Bishopric)