SEC OKs briefer halts in trading When market plummets, 'circuit breaker' kicks in; Regulation


NEW YORK -- The Securities and Exchange Commission yesterday approved a plan to shorten U.S. stock exchange trading halts that would be imposed if markets fall steeply.

Under the new rule, the New York Stock Exchange, the Nasdaq stock market, the American Stock Exchange and other U.S. exchanges would halt trading for half an hour if the Dow Jones industrial average falls 250 points.

If the Dow falls by 400 points, trading would be halted for an hour.

The so-called "circuit breakers" rule -- established in 1990 in the wake of the October 1987 stock market crash -- originally called for a one-hour halt with a 250-point drop and a two-hour halt with a 400-point drop.

Exchanges, led by the Big Board, proposed the shorter halts after some investors complained that the rules were too restrictive, although they've never been tested.

Critics say the rules were imposed when a 250-point move represented about 10 percent of the Dow's value.

TC With the average now above 5,000 points, those levels are obsolete, they contend.

Supporters of the halts, including NYSE officials, say the rules would curb disorderly markets but wouldn't stop stocks from falling.

"A $6.6 trillion market is going to find its level," said NYSE Chairman Richard Grasso.

The Big Board plans to re-examine the rules again later this year, Grasso said.

"I want to throw everything on the table," he said.

Grasso met with reporters at the end of the busiest week ever for the Big Board.

Stocks gyrated and trading passed the volume from the week ended March 15, when 2.35 billion shares changed hands.

Trading didn't exceed the capacity of the exchange, which can now handle as many as 2.4 billion shares a day, Grasso said, noting that the NYSE plans to expand that to accommodate up to 3.2 billion shares.

Grasso said one thing he doesn't plan to change is the collar that curbs index arbitrage -- buying or selling batches of stocks and offsetting the trades with futures contracts -- whenever the Dow industrials rise or fall 50 points.

Regulators enacted the curbs because index arbitrage was blamed for exacerbating the 1987 crash, when the Dow industrials fell 508 points, or 22 percent, in a day.

Investors criticized the rules in the past year because the 50-point collar was triggered dozens of times as the Dow surged.

L It kicked in seven times this week, exchange officials said.

Pub Date: 7/20/96

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