NYSE Trading Curbs Eliminated

[thetradingdoctor 10]

Oct. 26 (Bloomberg) -- The New York Stock Exchange said it will no longer impose curbs on computer-program trading that were put in place after the crash of 1987, claiming they're no longer as effective in damping swings in prices.

 

The exchange will stop prohibiting brokerages from entering some program trades when the NYSE Composite Index rises or falls more than 2 percent, according to a notice sent to member firms today. The so-called collars had been in effect since 1988 and were triggered 17 times this year, according to a filing with the Securities and Exchange Commission.

 

``Volatility is neither restrained nor enhanced by the imposition of the collars,'' the NYSE said in the SEC filing making the changes effective. ``The exchange is making this change since it does not appear that the approach of market volatility envisioned by the use of these collars is as meaningful today as when the rule was formalized in the late 1980s.''

 

The curbs applied only to some index arbitrage trades on stocks in the Standard & Poor's 500 Index executed at the Big Board. Brokerages weren't barred from turning to rival exchanges to complete those trades.

 

Increased electronic trading has also made arbitrage strategies a smaller piece of daily equity trading, the NYSE said in the filing. Index arbitrage strategies accounted for about 4.6 percent of the total shares bought or sold at the NYSE, according to data on its Web site.

 

The Dow Jones Industrial Average fell 22.6 percent on Oct. 19, 1987, its steepest one-day decline ever, according to the Stock Trader's Almanac. At the time, some analysts and regulators said index arbitrage trades handled electronically contributed to the drop.

 

During the final half-hour of trading, index arbitrage strategies accounted for about 3.2 percent of trading at the NYSE, according to the presidential report on the 1987 crash. Program trading represented a total of about 12.2 percent.

 

Brokerages will still be required to report program trades, defined by the NYSE as the purchase or sale of a basket of at least 15 stocks valued at a minimum of $1 mill

 

 

 

http://quote.bloomberg.com/apps/news?pid=20601087&sid=ahZh1lKYXD8w

 

 

Thanks!

 

Doctor Janice

[The Bear 10]

Interesting stuff - i always wondered what it meant when Maria kept saying Trading Curbs Now In Effect.

[aiki14 10]

Interesting stuff - i always wondered what it meant when Maria kept saying Trading Curbs Now In Effect.

 

From http://www.programtrading.com/hlc.htm a good resource for program trading info as well.

 

 

Program Trading Curbs

Whenever CNBC runs a banner on your television screen that says CURBS IN or CURBS IN, we receive a ton of email from investors asking "What are curbs?" Here is the answer for you:

 

Program Trading "Collars"

A collar on program trading firms instituted by the NYSE is most commonly referred to on CNBC as "curbs in". The NYSE applies program trading curbs whenever the NYSE Composite Index (NYA) moves 190 points higher, or 190 points lower than the previous day's closing price.

 

This NYSE restriction on program trades stays in place until the NYA returns to within 90 points of the previous day's closing price; or, until the end of the trading day at 3:00 CT. The restrictions will be re-imposed each time the NYA advances or declines 190 points. NYSE Trading Curbs apply only to our firm's (and other program trading firm's) computer assisted program trades. Contrary to what the public thinks, these collars do not completely stop all program trading, nor do they cancel out today's premium (prem) execution levels.

 

The NYSE defines a Program Trade as:

1. A basket of 15 or more stocks from the Standard & Poor’s 500 Index.

2. A basket of stocks from the Standard & Poor's 500 Index valued at $1 million or more.

 

Once the NYSE program trading collar is in place, Program Selling can be executed only on an up-tick. That means that the last trade was executed at a higher price than the trade before it. Program Buying can be executed only on a down-tick. That means that the last trade was executed at a lower price than the trade before it.

 

Program Trading "Sidecars"

In the past, this was another type of NYSE Trading Curb. It was eliminated on Tuesday, February 16, 1999.

 

Program Trading "Circuit Breakers"

If the Dow Jones Industrial Average falls 10%, trading is halted on the New York Stock Exchange for 60 minutes. If the Dow Jones rallies 10%, there is no restriction. Why? Because program buying and the accompany rally is always perceived as "good".

 

If the Dow Jones Industrial Average falls 20%, trading is halted on the New York Stock Exchange for two hours. There is no trading halt if it rallies 20%, as that would be perceived as "very very good".

 

If the Dow Jones Industrial Average falls 30%, trading is halted on the New York Stock Exchange for the day. There is no trading halt if it rallies 30%, as that would be perceived as "the best thing that ever happened in the history of the world".

 

According to the NYSE the current 10, 20 and 30 percent decline levels, respectively, in the DJIA will be as follows: A 1,350 point drop in the DJIA will halt trading for one hour if the decline occurs before 2 p.m.; for 30 minutes if before 2:30 p.m.; and have no effect between 2:30 p.m. and 4 p.m. A 2,700 point drop will halt trading for two hours if the decline occurs before 1 p.m.; for one hour if before 2 p.m.; and for the remainder of the day if between 2 p.m. and 4 p.m. A 4,050 point drop will halt trading for the remainder of the day regardless of when the decline occurs. Point levels are set quarterly by using the DJIA average closing values of the previous month, rounded to the nearest 50 points. The percentage levels are adjusted quarterly.

[The Bear 10]

I saw it flashed again on the tv screen but they didn't say anything about it. Right around the close.