NYSE Eliminates Trading Curbs Dating Back to 1987 (Update1)
By Edgar Ortega
Oct. 26 (Bloomberg) -- The New York Stock Exchange said it will no longer impose curbs on computer-program trading that were put in place after the crash of 1987, claiming they're no longer as effective in damping swings in prices.
The exchange will stop prohibiting brokerages from entering some program trades when the NYSE Composite Index rises or falls more than 2 percent, according to a notice sent to member firms today. The so-called collars had been in effect since 1988 and were triggered 17 times this year, according to a filing with the Securities and Exchange Commission.
``Volatility is neither restrained nor enhanced by the imposition of the collars,'' the NYSE said in the SEC filing making the changes effective. ``The exchange is making this change since it does not appear that the approach of market volatility envisioned by the use of these collars is as meaningful today as when the rule was formalized in the late 1980s.''
The curbs applied only to some index arbitrage trades on stocks in the Standard & Poor's 500 Index executed at the Big Board. Brokerages weren't barred from turning to rival exchanges to complete those trades.
Increased electronic trading has also made arbitrage strategies a smaller piece of daily equity trading, the NYSE said in the filing. Index arbitrage strategies accounted for about 4.6 percent of the total shares bought or sold at the NYSE, according to data on its Web site.
The Dow Jones Industrial Average fell 22.6 percent on Oct. 19, 1987, its steepest one-day decline ever, according to the Stock Trader's Almanac. At the time, some analysts and regulators said index arbitrage trades handled electronically contributed to the drop.
During the final half-hour of trading, index arbitrage strategies accounted for about 3.2 percent of trading at the NYSE, according to the presidential report on the 1987 crash. Program trading represented a total of about 12.2 percent.
Brokerages will still be required to report program trades, defined by the NYSE as the purchase or sale of a basket of at least 15 stocks valued at a minimum of $1 million.
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I found this on Zeev's thread
