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Strategies & Market Trends : Take the Money and Run -- Ignore unavailable to you. Want to Upgrade?

To: Jorj X Mckie who wrote (9753)	7/20/2002 5:10:11 PM
From: Rainy_Day_Woman	Read Replies (1) \| Respond to of 17639

Exchanges - Circuit Breakers, Curbs, and Other Trading Restrictions Restriction Triggered by NYSE collar (Rule 80A) DJIA moves 180 points CME restriction 1 S&P500 futures contract moves 2.5% CME restriction 2 S&P500 futures contract moves 5% CME restriction 3 S&P500 futures contract moves 10% NYSE circuit breaker nr. 1 DJIA moves 10% NYSE circuit breaker nr. 2 DJIA moves 20% NYSE Circuit breaker nr. 3 DJIA moves 30% Now some details about each. NYSE Collar (Rule 80A): Restrictions on program trading This restriction is triggered if the Dow Jones Industrial Average (DJIA) moves up or down by 210 points (for 1Q01). If this trigger occurs, program trading curbs are put in effect. Essentially a key computer is turned off, so program trading must be done "by hand." This rule is also known as the "uptick downtick rule" (more formally: index arbitrage tick test) because it restricts sells to upticks and buys to downticks. In other words, when the market is down (last tick was down), sell orders can't be executed at lower prices. In an up market (last tick was up), buy orders can't be executed for higher prices. This collar is removed when the DJIA retraces its gain or loss to within 100 points of the previous close. CME Restrictions Trading in the S&P500 futures contract is halted just for a few minutes if the prices moves 2.5%, 5%, or 10% from the previous close. Because restrictions on the NYSE effectively shut down trading in this futures contract, there is little need for additional restrictions on the CME. NYSE Circuit Breakers These restrictions are also known as "Rule 80B." The first version of this rule, adopted in 1988, set triggers at 250 DJIA points and 400 DJIA points. These restrictions are updated quarterly to reflect the heights to which the Dow Jones Industrial Average has climbed. 10% decline (1050 points for 1Q01) The first circuit breaker is triggered if the DJIA declines by approximately 10%. The restrictions that are put into place -- if any -- depend on the time of day when the circuit breaker is triggered. If the trigger occurs before 2pm Eastern time, trading is halted for 1 hour. If the trigger occurs between 2 and 2:30pm Eastern, trading is halted for 30 minutes. If the trigger occurs after 2:30pm Eastern time, no restrictions are put into place. (This restriction was first used during the afternoon of 27 Oct 97.) If the Dow Jones rallies 10%, there is no restriction, because program buying and the accompany rally is always perceived as "good." 20% decline (2150 DJIA points for 1Q01) The second circuit breaker is triggered if the DJIA declines by approximately 20%. The restrictions that are put into place again depend on the time of day when the circuit breaker is triggered. If the trigger occurs before 1pm Eastern time, trading is halted for 2 hours. If the trigger occurs between 1 and 2pm Eastern, trading is halted for 1 hour. If the trigger occurs after 2pm Eastern time, the NYSE ends trading for the day. There is no trading halt if it rallies 20%, as that would be perceived as "very very good." 30% decline (3200 DJIA points for 1Q01) The third circuit breaker is triggered if the DJIA declines by approximately 30%. The restriction is very simple: the NYSE closes early that day. There is no trading halt if it rallies 30%, as that would be perceived as "the best thing that ever happened in the history of the world." The circuit breakers cut off the automated program trading initiated by the big brokerage houses. The big boys have their computers directly connected to the trading floor on the stock exchanges, and hence can program their computers to place direct huge buy/sell orders that are executed in a blink. This automated connection allows them to short-cut the individual investors who must go thru the brokers and the specialists on the stock exchange. Statistical evidence suggests that about 2/3 of the Mar-Apr 1994 down slide was caused by the program traders trying to lock in their profits before all hell broke loose. The volume of their trades and their very action may have accelerated the slide. The new game in town is how to outfox the circuit breakers and buy or sell quickly before the 50-point move triggers the halting of the automated trading and shuts off the computer.