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NYSE eases breakers a bit
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December 4, 1997: 4:45 p.m. ET
Board removes 350-point halt, but new rule changes not as wide as expected
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NEW YORK (CNNfn) - Directors of the New York Stock Exchange approved several modifications to its circuit breaker rules, although the changes were not as sweeping as expected.
As part of its yearly approval process, NYSE directors Thursday approved a rule change that would lower the trading halt following a 550-point drop from one hour to 30 minutes. Trading would not resume if the 550-point threshold was triggered after 3 p.m.
The 30-minute halt following a 350-point drop would remain in effect.
The modifications will go into effect after they are approved by the Securities & Exchange Commission.
The board also decided not to impose the 350-point circuit breaker after 3 p.m., allowing trading to continue uninterrupted until the 550-point threshold was hit.
Appearing Thursday on CNNfn, Richard Grasso, NYSE chairman, said the latest move was only an initial step.
He said the steep market drops in October showed that the current breakers were too low and that particular care must be taken to ensure rules don't lead to panic toward the end of a session.
Currently, trading is suspended for half hour if the Dow Jones industrial average drops 350 points and for one hour if the index loses 550 points.
The NYSE also decided to ask the Securities and Exchange Commission to extend rule 10b-18 to permit companies to buy back their shares under the "safe harbor" provision during the final 30 minutes.
Many expected the board to make more sweeping changes. Speculation was that the curbs would be tied to percentage losses. One plan reportedly under consideration would have stopped trading when the market fell 10 percent and a second halt would have been enacted following a 20 percent close.
The NYSE left open the possibility that more sweeping changes would be made, saying additional modifications would be proposed in 1998
"We've amended the initial circuit breakers with the idea that after the new year we will return to the SEC and propose going to the thresholds of 10 and 20 percent," Grasso said.
He said it was inevitable that some would question why the 10 and 20 percent limits were not enacted immediately. He said the board opted to wait to give constituents a chance to comment.
"We have a broad range of constituents we're seeking input from. I believe the threshholding is no longer a great debate. It will probably benchmark at about the 10 and 20 percent level.
"The question becomes, 'how do you react after those levels are tripped? Should you continue if the market went down 20 percent in a single session?' If we're going to resume after a 10 percent drop, on what special procedural basis? Those decisions need the broadest input," he said.
He conceded that the circuit breakers have not kept pace with the current bull market, but believes the new proposals address that.
"Some, including myself, believe there was far too narrow a distance between the first and second breaker. The broader issue is this market has tripled from the levels when the breakers were first installed. We've not kept pace with the development of the market, so it's prudent to make changes. But we've got to do it with the view of preserving investors' confidence," he said.
Still, Grasso said whatever action the board takes, there will always be dissension. (229K WAV) or (229K AIFF)
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