NYSE Files to End Trading 'Collars'
October 27, 2007; Page B3
http://online.wsj.com/article/SB119344491849373555.html?mod=hps_us_whats_newsNEW YORK -- The New York Stock Exchange said it has made a rule filing with the Securities and Exchange Commission to remove certain program-trading restrictions known as "trading collars."
The collars came to prominence after the 1987 market crash. They were designed to slow down the form of program trading known as index arbitrage.
Under the collar, whenever the NYSE Composite Index rises or falls a certain amount during the trading day -- in the current quarter, the trigger level is 190 points -- it means that all index-arbitrage orders must be "stabilizing" for the rest of the day. In other words, not add to the market's prevailing trend.
The exchange, a unit of NYSE Euronext, said since the trading collars had applied only to the NYSE and not to other exchanges or trading platforms, the rule "had not effectively been serving its original or fundamental purpose of stabilizing markets during periods of especially volatile trading."
The NYSE noted that it isn't doing away with the marketwide "circuit breakers." The circuit breakers shut down trading for certain lengths of time in the event of large declines in the Dow Jones Industrial Average. In the current quarter, the first such shutdown wouldn't occur until a 1,350-point drop in the Dow. The circuit breakers are reset each quarter based on 10%, 20% and 30% of the Dow's level.