Stock Exchanges Poised to Ease Market ‘Circuit Breaker’ Triggers
Major U.S. stock exchanges informally agreed to expand by about 40% the market-decline triggers that automatically halt trading, stock market executives said Friday.
Representatives of all major U.S. markets, including the New York Stock Exchange, agreed to change the benchmark that halts trading for half an hour to a 350-point decline in the Dow Jones industrial average, according to Allan A. Bretzer, Chicago Stock Exchange senior vice president. The markets also agreed at a meeting Thursday in Washington to loosen the hourlong trigger to 550 points, said Bretzer and four other executives who were present.
The stock exchanges are now required to halt trading for 30 minutes if the Dow falls 250 points in a single trading day. The cooling-off period expands to an hour if the decline reaches 400 points.
These so-called circuit breakers were put in place after the October 1987 stock market crash and are intended to prevent trading panic that could accelerate in volatile market declines.
Since falling to as low as 1,712 points in October 1987, the Dow index has risen almost fourfold to 6,471 as of Friday. That means the existing circuit-breaker limits “aren’t realistic any more,” Bretzer said.
Under the informal agreement, reached at a meeting at Securities and Exchange Commission headquarters, the exchanges would review these levels each year, said Bretzer and four other executives in attendance.
Attending the meeting were representatives of the NYSE, the Nasdaq Stock Market, the AMEX, the regional exchanges, the Chicago Mercantile Exchange, and the Chicago Board of Options Exchange.
The only potential obstacle to a final agreement is winning official ratification from the full NYSE board, which is to meet Dec. 5 or Feb. 6 to consider the proposal, the four executives said.
The NYSE declined to comment on the agreement. An SEC spokeswoman also declined to comment.
The NYSE, the nation’s largest exchange, has been reluctant to commit to an agreement. NYSE Chairman Richard A. Grasso cast doubt earlier this month on whether it would comply with an SEC request to loosen the triggers.
Even so, NYSE Group Executive Vice President Edward A. Kwalwasser attended Thursday’s meeting and expressed support for the proposal, others in attendance said. Kwalwasser said NYSE-listed companies were resisting any loosening of circuit-breakers, but added that NYSE executives believe some relaxation of the triggers is in order, the executives said.
SEC market-regulation director Richard Lindsey also backed the plan, the executives said.
“I think 350 points is an acceptable compromise,” said American Stock Exchange President Thomas Ryan.
The agreement doesn’t affect the existing “trading collar” rule under which computer-guided trading is limited whenever the Dow index rises or falls 50 points or more.
