Big Board Favors Higher ‘Trigger’ Nyse Officials Propose Tripling Threshold For Halting Trading
The New York Stock Exchange wants to triple the threshold for halting trading during dramatic price drops on the nation’s stock markets to counter criticism the halts can now be activated too easily.
Under the proposal, the circuit breakers would be activated at market declines of 10 percent and 20 percent. Currently, drops of about 4.5 percent and 7 percent temporarily halt trading.
The change would be the second in two years and the third since circuit breakers were implemented in response to the October 1987 stock market crash. They were designed to slow the plunge in the event of another wrenching sell-off.
Under the proposal, the point values for the 10 percent and 20 percent drops would be recalculated annually. Based on Monday’s close, those drops would have been 776 points for the first halt and 1,553 for the second.
The circuit breakers now halt trading for a half-hour when the Dow Jones industrial average drops by 350 points and for an hour when the blue-chip indicator falls by 550 points to help calm investors.
But critics have contended that those point drops are too small and might actually worsen market instability. Those concerns were heightened during last month’s stock market plunge when the curbs kicked in for the first time.
When the restrictions were first put in place, the Dow had to fall 12 percent to trigger the first halt and 19 percent to trigger the next. The market dive on Oct. 27 was 7.2 percent, or 554 points.
Concern the threshold for triggering the circuit breakers is outdated has grown amid an almost quadrupling in the value of the Dow Jones industrial average since 1988, when the rules went into effect.
Critics have contended that the trading halts kicked in too soon last month and may have actually worsened market panic by prompting investors to sell their shares before the last circuit breaker was activated.
Many traders later complained that the circuit breakers didn’t operate as they are supposed to, as a brake on panic selling, because the big sell-off wasn’t really a panic.
The market dive on the Black Monday crash of Oct. 19, 1987, that led to the circuit breakers was 22.6 percent.
Scrutiny of the mandatory pauses intensified last Friday as federal securities regulators met with aides from the major stock exchange to discuss possible changes. The new proposal was raised at that meeting.
Securities and Exchange Commission Chairman Arthur Levitt Jr., who didn’t attend the meeting, has previously called concerns about the circuit breakers “legitimate.”
The SEC and the National Association of Securities Dealers, one of nation’s three major stock exchanges besides the NYSE and the American Stock Exchange, both refused to comment on the proposal.