By Chris Dieterich and Jacob Bunge
NEW YORK--Wall Street's main trade group on Monday threw its
support behind plans by NYSE Euronext (NYX) to reinstate the
exchange operator's internal safeguards against volatile stock
moves in the wake of recent violent swings seen around the opening
and closing bells.
The Securities Industry and Financial Markets, or Sifma, said in
a letter to regulators that allowing the NYSE to reintroduce its
system could mitigate early- and late-session stocks swings until
new systemwide rules take full effect later this summer.
The Big Board operator last week asked regulators for permission
to revive its system of so-called stock speed bumps, known as
liquidity replenishment points, or LRPs. These were phased out by
the exchange when a new, market-wide system was introduced in
April.
The new system to contain violent stock moves only allows trades
to take place within price bands tied to a share's recent trading
history. The new rules are being rolled out in phases and won't
take effect during the first 15 and final 30 minutes of trading
until early August.
A series of sudden stock prompted worries about the
vulnerability of the markets for the next two months around the
opening and closing bells. Last month, NYSE cancelled hundreds of
trades in Anadarko Petroleum Corp. (APC) after its stock plummeted
from more than $90 to one penny in the final second of trading.
Other trades in American Electric Power Co. Inc. (AEP) and NextEra
Energy Inc. (NEE) were let stand after drops of more than 50%
shortly after the market opened.
On Monday, NYSE cancelled trades in Williams-Sonoma Inc. (WSM)
after a steep decline shortly after the opening bell.
"Recently, there have been several occurrences of sharp price
declines in stocks during the open and close periods when the price
bands are not in effect," said T. R. Lazo, Sifma's managing
director and associate general counsel in the letter.
"[Sifma] believes that allowing NYSE to reinstate the LRP
functionality will help reduce the instances of sharp price
movements until Phase II of the plan, when the price bands will be
in effect during the entire trading day."
NYSE dropped its proprietary safeguards ahead of the
implementation of the new rules to help reduce the complexities
associated with overlapping systems.
"Any concerns about market complexity would be outweighed by the
fact that reinstating the LRP functionality could reduce the
likelihood of sharp price movements during the open and close
periods," Mr. Lazo said in the letter.
The NYSE proposal would see it return its proprietary safeguards
when the new market-wide system is inactive. The new system will
begin expanding to cover the entire trading day by Aug. 5, at which
point the NYSE would again phase out its program as stocks gain
full-day protections, according to its proposal.
The exchange said industrywide volatility guards shouldn't "come
at the expense of existing investor-protection mechanisms" and
warned of "unintended consequences to the detriment of investors
and the marketplace as a whole," in an April letter to the SEC
outlining its plans to phase out the system.
Write to Chris Dieterich at christopher.dieterich@dowjones.com
and Jacob Bunge at jacob.bunge@dowjones.com
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