U.S. SEC approves NYSE request for new market volatility rules

Wed Jul 6, 2016 4:59pm EDT
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By Chuck Mikolajczak

NEW YORK (Reuters) - The U.S. Securities and Exchange Commission has approved plans by the New York Stock Exchange to speed up and smooth early morning trading in times of market stress.

In a ruling released on Tuesday, the SEC said the NYSE could allow stocks to open for trading on particularly volatile days, even in the absence of clear price disclosure that is normally required before trading opens.

The NYSE had asked for the new rules after disorderly trading on Aug. 24, 2015, when there was a record intraday drop in the Dow Jones industrial average .DJI.

The exchange, a unit of Intercontinental Exchange Inc (ICE.N: Quote), still needs to make technological changes before the new rules can go into effect. Kristen Kaus, a spokeswoman for the NYSE, would not provide any detail about how long that might take.

The rules themselves are somewhat technical. Unlike other exchanges, which are nearly fully automated, at the NYSE people on the trading floor open the stocks, a process the exchange says gives it greater stability because people can intervene in ways that trading algorithms cannot.

For an individual stock to begin trading on a typical day, the trader responsible for that stock - known as the market maker - has to disclose the likely price at which a stock will open, known as pre-opening indications.

On volatile days or when trading was disordered, the exchange could invoke its "Rule 48," allowing market makers to open trading on stocks manually on a case-by-case basis, even if they could not identify a stable price. Because it required human judgment and interaction, Rule 48 sometimes slowed the ability of shares to start or resume trading.

The newly approved procedures would eliminate Rule 48 and instead set up specific guidelines for when shares could open or be reopened after a trading halt. The theory is that this will allow trading to start more quickly.   Continued...

Traders work on the floor of the New York Stock Exchange (NYSE) shortly after the opening bell in New York, U.S., July 6, 2016.  REUTERS/Lucas Jackson