Levitt Supports ‘Circuit Breaker’ Plan
Securities and Exchange Commission Chairman Arthur Levitt expressed support Sunday for the “circuit breaker” rules approved last week by the New York Stock Exchange.
“I think they are reasonable,” said Levitt in his first public comment on the NYSE rules, which still have to be approved by the commission. “I’m not a great partisan of circuit breakers, but they are part of the system and I think the limits are much more realistic than they had been.”
Levitt made his comments on the new NYSE rules after he addressed The Times’ Investment Strategies Conference in Los Angeles. Levitt’s comments suggest that the SEC will give final approval to the NYSE proposal.
The new rules would halt trading for an hour when the Dow Jones industrial average falls 10%, for two hours when the Dow falls 20%, and for the rest of the day when the average falls 30%. The rules would be modified in the afternoon.
Big Board officials wanted to be able to close the market for the day whenever the Dow dropped 20%, but changed their plan under pressure from Levitt and the SEC.
“This proposal is a consensus of opinions voiced by the exchange’s broad range of constituents, as well as the views voiced during the past several months of discussions with regulatory agencies and other markets,” Richard Grasso, the NYSE’s chairman and chief executive, said in a statement.
Circuit breakers, adopted after the 1987 stock market crash, are designed to give market participants a breather in an effort to avoid trading panic.
If the thresholds were now in effect, they would trigger halts after drops of about 800 points, 1,600 points and 2,400 points. The trigger points would be calculated four times a year. Currently, the exchange stops trading for half an hour when the Dow falls 350 points and for an hour when it falls 550.
The Big Board’s staff developed the plan in response to government regulators’ concern that an earlier proposal would have eroded investor confidence by closing markets unnecessarily. The new plan would close U.S. trading for the day only when the Dow falls 20% after 2 p.m. New York time or 30% at any point.
In addition, the rules would loosen in the afternoon. The market would close for an hour if the Dow falls 10% before 2 p.m. New York time. It would halt for 30 minutes if the average drops 10% between 2 p.m. and 2:30 p.m., and wouldn’t stop at all if the Dow crosses the 10% threshold after 2:30 p.m.
A 20% decline would trigger a two-hour halt if it happens before 1 p.m. New York time, and an hourlong suspension if it occurs between 1 and 2 p.m. A 20% drop after 2 p.m. would close U.S. markets for the day.
Circuit breakers became an issue after they were tripped for the first time Oct. 27, when U.S. markets closed early after the Dow fell 554 points, or 7.2%.
Many brokers and regulators said the prospect of a trading halt may have speeded the Dow’s decline that day rather than slowing it.
Also at the conference, Levitt said the SEC plans to launch an Internet service in about a month that will let investors scrutinize stockbroker credentials. By mid-1999, the service will be able to cite disciplinary actions and other information for every registered broker and brokerage firm in the U.S., he said.
On Tuesday the SEC expects to unveil initiatives aimed at closing loopholes and strengthening market security. The SEC and the National Assn. of Securities Dealers currently operate the Central Registration Depositary, which investors can call to check on complaints against brokers.
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Reuters contributed to this report.
