NYSE Urges Stock Exchanges to Change Rules Following Aug. 24

  • U.S. exchanges should harmonize rules that restart trading
  • Nasdaq's Greifeld says NYSE's failure to open was inexcusable

The New York Stock Exchange has called for every U.S. equity market to change their rules to prevent a repeat of the chaotic trading session on Aug. 24.

NYSE Group Inc. said trading halts designed to ease volatility should be longer, and exchange operators in the U.S. should harmonize the rules governing how to restart the stock market. The recommendations, in a report released on Thursday, could stop another haywire session from taking place, NYSE said.

The oldest U.S. equity market has already tweaked its own rules in response to the Aug. 24 rout. And the firm is part of a group of exchanges that has convened to discuss strengthening the market safeguards put in place after the 2010 flash crash, an earlier day of mayhem.

“This report identifies a number of priorities for enhancing market structure that have the support of a broad cross section of our industry and which can and should be implemented quickly,” Stacey Cunningham, NYSE’s chief operating officer, said in a press release.

After the flash crash, stock markets introduced a system called limit-up/limit-down, which prevents traders from quoting stocks outside predictable price bands -- an attempt to limit volatility. NYSE said that the events of Aug. 24 show venues need to better coordinate those bands.

Robert Greifeld, chief executive officer of Nasdaq Inc., said that NYSE should address its own opening procedures. Almost half the stocks listed on NYSE had not started trading by 9:40 a.m. on Aug. 24, according to a BlackRock report on the day. Nasdaq and Bats both opened the vast majority of the shares listed on their markets within the first minutes of trading.

"I have a simple solution for them: to open their market at 9:30," Greifeld said in a phone interview. "It was inexcusable."

NYSE Arca has already changed some of its own rules in reaction to the Aug. 24 trading session, widening the amount prices can move when a security reopens after a trading halt and during opening auctions.

The report argues that trading halts should be extended when necessary to remove order imbalances.

“A five-minute halt gives the market a little bit of a breather, but it’s not a very long time,” Steve Crutchfield, head of exchange-traded products, bonds and options at NYSE Group, said in a phone interview. “There was never a view that five minutes is a magical period of time.”

The U.S. Securities and Exchange Commission released its own 88-page postmortem of Aug. 24 in December, but it did not include any policy fixes.

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