- Rule 48 was invoked on Aug. 24, before prices went haywire
- BlackRock says the rule contributed to that day's problems
The New York Stock Exchange wants to eliminate a rule some blame for creating confusion in the U.S. equity market on Aug. 24, when prices swung wildly during the opening minutes of trading.
The item in question is Rule 48, which the NYSE declares on volatile days with the goal of ensuring orderly trading. But it may have backfired on Aug. 24 by leaving traders in the dark about prices.
“Rule 48 is no longer relevant in the opening procedures we have proposed,” Stacey Cunningham, chief operating officer of NYSE Group Inc., said Tuesday at a meeting of the U.S. Securities and Exchange Commission’s Equity Market Structure Advisory Committee in Washington.
The rule lets NYSE market makers suspend their normal obligation to publicize the likely price at which stocks will open for trading. It was invoked on Aug. 24 amid an overseas rout that looked poised to drive U.S. prices lower. The rule is supposed to help market makers avoid some cumbersome manual procedures during times of volatility.
BlackRock Inc., the world’s largest asset manager, wrote in an October report that Rule 48 contributed to the problems on Aug. 24 -- a day plagued by difficulties getting hundreds of stocks trading and temporary losses exceeding 20 percent for marquee stocks like JPMorgan Chase & Co. and General Electric Co.
The invocation of Rule 48 that day, combined with delays getting many securities trading, “impeded the normal flow of information which market makers and other participants rely upon to perform their customary activities with respect to the market open,” according to BlackRock.
The exchange plans to file for SEC permission to eliminate the rule, said Sara Cohen, a spokeswoman for NYSE Group. The Financial Times reported the news earlier Tuesday. Regulators would have to approve the change. NYSE has used the rule 69 times since it was adopted in December 2007, according to the exchange.
NYSE, a unit of a unit of Intercontinental Exchange Inc., hired McKinsey & Co. to conduct research on Aug. 24 and review its procedures, the results of which it published last week. In the report, NYSE said that it would change its opening procedures to increase transparency on volatile days.