Federal regulators are planning special rules to ensure smooth trading, including easing restrictions on companies buying back their own shares, for the anticipated reopening of the stock markets Monday after an extraordinary four-day shutdown.
Officials of the Securities and Exchange Commission were consulting with the top officials of the nation's stock markets Friday to determine what shape the rules would take.
They know that restoring confidence in the U.S. financial system means reopening the symbolic trading floors at the New York Stock Exchange, a mere five blocks from the devastated World Trade Center site in lower Manhattan's financial district.
At the same time, the regulators and Wall Street officials must strike a balance between the goal of a normally functioning market and the need to respond to a panicky selloff by investors.
Reopening the market will be a struggle: Workers have been racing to replace the communications and power systems lost in Tuesday's terrorist attack, but some experts aren't convinced there will be enough time to repair the damage.
The plan to resume trading Monday on the NYSE, the all-electronic Nasdaq Stock Market and the regional U.S. exchanges depends on the results from a test of market systems on Saturday. However, NYSE chairman Richard A. Grasso said Friday during a conference call with reporters that he is confident the exchange will be ready.
The SEC has set up a telephone hot line to help answer individual investors' questions and address trading-related complaints: 1-800-732-0330.
The watchdog agency was expected to temporarily ease restrictions on companies buying back their own shares, as a way of pumping more money into the market. Current SEC rules restrict corporations from buying or selling more than a specific daily volume of their own shares and from trading at the market's opening or closing.
SEC Commissioner Laura Unger said Thursday that companies won't be subject to the customary limits.
Rep. Michael Oxley, R-Ohio, chairman of the House Financial Services Committee, called the buybacks "critical" to market stability.
One major technology company -- Internet networking giant Cisco Systems Inc. -- said late Thursday that it plans to repurchase up to $3 billion of stock over the next two years.
The agency also was expected to leave in place the current market system of so-called circuit breakers, which automatically halt stock trading when prices drop precipitously, exchange and industry sources said Friday, speaking on condition of anonymity. They were designed to be used only during a severe one-day market decline "of historic proportions."
At the height of the market boom in April 1998, the SEC required the circuit breakers to take effect beginning with a 10 percent drop.
The new rules raised the threshold for trading curbs to drops of 10 percent, 20 percent and 30 percent in the Dow Jones industrial average. Before that, curbs halted trading when the Dow industrials fell 350 points, which was equal in April 1998 to about 4 percent, and 550 points, which was about 6 percent.
A 10 percent drop in the Dow would be equal to about 960 points.
The changes were proposed by the NYSE, other major exchanges and the National Association of Securities Dealers because of concerns the triggers then in effect were too low and could aggravate market instability by disrupting trading when it isn't necessary.
Before the change, the market had fallen 20 percent in one day just once and 10 percent twice. The triggers had only been activated once: during the market meltdown of Oct. 27, 1997.
The SEC is also not expected to impose new restrictions on short-selling, a technique used by investors who believe a stock's price is about to go down, a point that the NYSE's Grasso reiterated during the call.
Short-selling could exacerbate any kind of market plunge on Monday.
The short-seller sells stock he does not yet own, but is able to borrow from a broker. He then delivers the borrowed shares to the buyer, collects payment, and waits for the price to fall. Once it falls, he buys shares at the lower price and gives them to the broker to replace those he borrowed.
On the Net:
Securities and Exchange Commission: http://www.sec.gov
New York Stock Exchange: http://nyse.com
Nasdaq Stock Market: http://nasdaq.com