Us Exchanges Apply For Circuit Breakers
Sydney Morning Herald
Friday September 2, 1988
CHICAGO: The Chicago Mercantile Exchange (CME) and the New York Stock Exchange (NYSE) have applied for approval to implement circuit breakers to temporarily halt trading in US stockmarkets during periods of volatile price swings, the CME said.
The exchanges applied to their respective regulatory agencies despite opposition to circuit breakers by the National Association of Securities Dealers (NASD), which oversees trading of securities not listed on stock exchanges.
Circuit breakers originally were proposed in May by the White House working group on the October crash.
The rules call for a one-hour trading halt if the Dow Jones Industrial average falls more than 250 points, and a two-hour halt if it falls more than 400 points.
The CME's filing asked the Commodity Futures Trading Commission (CFTC) not"to approve the rules unless the SEC (Securities and Exchange Commission)approves the counterpart rules of the NYSE".
The filing also asks that the rule changes not be approved unless all other exchanges dealing in equities and stock index futures and options also implement rules co-ordinating their trading halts at approximately 250 and 400 Dow points.
"For competitive reasons, it would not be appropriate for us to halt trading if rival exchanges were to remain open to attract our business," the CME said.
However, the NASD said in July that it opposed a circuit-breaker system because it was unsuitable for the over-the-counter market.
A NASD committee report said that in a multiple market-maker system such as NASD's automated quotation system (NASDAQ), "there is no reason to halt trading unless material news is being released about a company. Closing all markets, based on an arbitrary move in a narrow-based index, is likely to be counter-productive and disruptive".
A NASD spokesperson said this remains the group's position.
CME chairman Mr Bill Brodsky said the NASD's position could create a problem in getting the rule changes approved.
If the NASD does not go along with the circuit-breaker system, there is a potential for NYSE stocks to be trading over NASDAQ while the NYSE is closed for a trading halt, Mr Brodsky said.
"We're hopeful that others will follow suit ... and that the SEC will work with the NASD to get this approved.
"The futures exchanges are pretty much in line in formulating circuit-breaker rule changes," Mr Brodsky said. The NASD "is the only one that has acted in a manner that could create a problem at this point".
NYSE officials said they have filed with the SEC, but reiterated their position that the proposal for circuit breakers "is based upon the requirement that all markets in the US participate".
The circuit-breaker system would only be implemented for one year, at the end of which the policy would be reviewed and the rules renewed, modified or eliminated, the CME said.
© 1988 Sydney Morning Herald
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