NYSE Institutes Steps to Limit Program Trades : Wall Street: The measures would slow trading if the Dow falls sharply. They are a response to pressure from investors since the Oct. 13 plunge.

The New York Stock Exchange, bowing to intense pressure from investors and some member firms, said Thursday that it will institute a series of voluntary and mandatory steps to curb the stock market’s volatility.

After a meeting of the NYSE’s board, Chairman John J. Phelan Jr. announced that the exchange is asking for a voluntary halt to computerized program trading by brokerages and, with some exceptions, their customers. Many firms in the past two weeks have announced that they were stopping such trading for their own accounts.

Program trading has been widely blamed for contributing to recent sharp price swings in the market, which analysts say are driving some investors out of stocks.

Phelan said the voluntary halt would be supplemented by new mandatory rules that must be approved by the Securities and Exchange Commission. These include one that would drastically slow the execution of program trading orders if the Dow Jones industrial average falls by 30 points from the previous day’s close. This is essentially a new version of the NYSE’s so-called collar, which was tried and abandoned last year. The old collar went into effect only when the market rose or fell 50 points from the previous day’s close.

Another step adopted by the NYSE expands the use of a mechanism designed to give priority to trades by small investors. The mechanism, which Phelan compared to an “express bus” for small investors, will be used at all times, not just when the market is falling sharply.

The Big Board action follows an enormous backlash against program trading since Oct. 13, when the Dow average fell 190 points and several more days of erratic trading ensued. The uproar by investors, retail stockbrokers and companies whose stock is listed on the NYSE came even though there is dispute over whether program trading really was a main cause of the Oct. 13 plunge. The exchange has been under intense pressure to announce some action.

“We have, in effect, declared war on excessive volatility,” Phelan said at a press conference. In a written statement, he said the stock market’s recent volatility “has caused a significant erosion in investor confidence, which we must restore quickly if we are to maintain our role as a primary source of capital for corporate America.”

Most of the brokerages that were most heavily involved in program trading had already voluntarily stopped doing it for their own accounts. Some, including Merrill Lynch & Co. and Goldman, Sachs & Co., said this week they also will stop doing it for customers.

The new NYSE measures go into effect only when the market is moving down sharply, although Phelan said he would also like to see steps that would reduce volatility when stock prices are surging upward. “The more rapidly the market goes up, the more rapidly it’s likely to come down,” he said.

Phelan said the measures adopted Thursday were only short-term solutions, adding that the exchange is appointing a special blue-ribbon panel of experts to recommend more permanent steps for reducing the market’s volatility.

The NYSE move follows the announcement Wednesday by the Chicago Mercantile Exchange that it was adopting tighter rules for trading halts in falling markets. The Chicago exchange, where some stock index futures are traded, said it will impose a 10-minute trading halt when the Standard & Poor’s 500-stock index futures contract falls five points.

There are many forms of program trading, but the one that has received the most criticism is known as stock index arbitrage. It involves buying or selling baskets of stocks while making offsetting trades in stock index futures or options. The purpose is to profit from fleeting price differences between the futures and the stocks.

Phelan said he doesn’t believe that stock index arbitrage is the only cause of market volatility, and he asserted that the new measures would be needed even if stock index arbitrage didn’t exist. He said he hoped the new panel of experts also would address volatility caused by other forms of program trading, as well as by sudden influxes of buy or sell orders from overseas.

The NYSE’s request to customers basically calls on them to halt all program trading that exacerbates market volatility. It would allow them, however, to carry out program trades that would have a “stabilizing influence” on the market. Phelan said an example of stabilizing program trades would be those that helped the market rebound on a day that the Dow index was down sharply.

While most or all of the exchange’s member brokerages are expected to comply with the voluntary ban, it wasn’t clear whether customers will also. A spokeswoman for Wells Fargo Investment Advisors, a unit of Wells Fargo & Co., one of the largest customers for stock index arbitrage trades, refused to comment on whether the company will comply with the exchange’s request.

The exchange also said it will begin issuing program trading data each week instead of monthly. The information, which identifies the brokerages that are the biggest program traders and lists their volume, is seen as a way of adding pressure on member firms to comply with the ban.

The new mandatory steps would delay execution of program trading orders by the NYSE’s computerized order delivery system for 15 minutes if the Dow index falls 30 points from the previous day’s close. After a drop of 75 points from the previous day’s close, there would be a delay of 30 minutes. Phelan said “it slows the process down so that everybody has a fair chance to assess the market.”

The NYSE also would institute an hourlong delay if the S&P; 500-stock index futures contract traded on the Chicago Merc declines by 12 points--roughly equivalent to a 90-point drop in the Dow.

A spokesman for Salomon Bros., which has been one of the most active firms in carrying out program trading for customers, said top executives hadn’t had a chance to review the new NYSE steps, and he declined to comment. Paul W. Critchlow, senior vice president for communications at Merrill Lynch, said the firm is “quite supportive” of the measures announced by the exchange.