NYSE Seeks to Raise Threshold for Trade Halts

The New York Stock Exchange has proposed what would amount to nearly tripling the threshold for halting trading during dramatic drops in the Dow Jones industrial average to counter criticism that the halts are now activated too soon.

Under a proposal advanced last week, so-called circuit breakers would be activated at Dow declines of 10% and 20%. Currently, trading is temporarily halted at point drops that at current levels are equivalent to about 4.5% and 7%.

The change would be the second in two years and the third since circuit breakers were implemented in response to the October 1987 market crash, when the Dow lost 23%. Circuit breakers are designed to slow a plunge in the event of another steep sell-off.

Under the proposal, the point values for the 10% and 20% drops would be recalculated annually. Based on the Dow’s Monday close of 7,767.92 points, those drops would have been 776 points for Oct. 27’s first halt and 1,553 for the second.

Currently, circuit breakers halt trading for half an hour when the Dow drops 350 points and for an hour when the blue-chip indicator falls 550 points.

Debate over the threshold for triggering the circuit breakers has grown amid what has been almost a quadrupling in the value of the Dow since 1988.

These concerns were heightened on Oct. 27, when the Dow plunged 7.2%, or 554 points, and the curbs were activated for the first time. Critics contend that the halts were activated too soon and may actually have contributed to market panic by prompting investors to sell their shares before another circuit breaker might be activated.

Scrutiny of the mandatory pauses intensified last week as federal securities regulators met with representatives from the NYSE to discuss the possibility of changes. The proposal was raised at that meeting.

Securities and Exchange Commission Chairman Arthur Levitt, who didn’t attend the meeting, has previously called concerns about the circuit breakers legitimate.