NASD asks new limits for halting big sell-offs 500-point fall would trip 'circuit breaker' instead of 250-point drop in Dow; Securities


WASHINGTON -- The National Association of Securities Dealers said yesterday that automated trading halts should occur only if the market falls 500 points or more, considerably more than the current threshold.

At present, a 250-point decline in the Dow Jones industrial average from the previous day's close triggers so-called "circuit breakers" that halt trading for an hour.

The circuit breakers halt trading for two hours if the industrial average, composed of 30 blue-chip stocks, goes down 400 points.

The exchanges enacted these rules after the stock market crash of 1987. However, the Dow now trades at a much higher level, which has convinced the exchanges to propose making the circuit breakers less disruptive through shorter trading halts.

In a comment letter submitted to the Securities and Exchange Commission, the NASD said the exchanges should focus on higher thresholds rather than shorter trading halts.

Specifically, the NASD said the New York and the American stock exchanges should initially halt trading if the Dow declines 500 points and reserve a second suspension for a drop of 800 points.

"Obviously, we are going to be generally supportive of the exchanges' proposals," said Stephan Beauchesne, an NASD spokesman.

"What we would offer is an increase in the trigger levels to be 500 and 800, which percentage-wise corresponds more to a move of the same proportion in 1988," when the circuit breakers were put in place.

Moreover, the NASD says the Dow is too narrow a barometer on which to base trading halts. The NASD suggested that the NYSE and the American Stock Exchange use a broader-based index, such as the Standard & Poor's 500.

Unlike the exchanges, the NASD doesn't have any circuit breaker rules for trading in the Nasdaq stock market. Nevertheless, the Nasdaq has to shut down when the NYSE and American Stock Exchange circuit breakers go off.

The exchanges proposed shortening the trading halts to 30 minutes and one hour after a 217-point drop in the Dow on March 8 illustrated that today's circuit breakers may be too tight.

Critics noted that the March 8 drop equaled a 3.8 percent decline in the Dow, hardly enough to justify a step as disruptive as a complete trading halt.

Pub Date: 5/31/96

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