Curbs In, What does it mean

[aiki14]

From http://www.programtrading.com/hlc.htm a good resource for program trading info as well.


Program Trading Curbs
Whenever CNBC runs a banner on your television screen that says CURBS IN or CURBS IN, we receive a ton of email from investors asking "What are curbs?" Here is the answer for you:

Program Trading "Collars"
A collar on program trading firms instituted by the NYSE is most commonly referred to on CNBC as "curbs in". The NYSE applies program trading curbs whenever the NYSE Composite Index (NYA) moves 190 points higher, or 190 points lower than the previous day's closing price.

This NYSE restriction on program trades stays in place until the NYA returns to within 90 points of the previous day's closing price; or, until the end of the trading day at 3:00 CT. The restrictions will be re-imposed each time the NYA advances or declines 190 points. NYSE Trading Curbs apply only to our firm's (and other program trading firm's) computer assisted program trades. Contrary to what the public thinks, these collars do not completely stop all program trading, nor do they cancel out today's premium (prem) execution levels.

The NYSE defines a Program Trade as:
1. A basket of 15 or more stocks from the Standard & Poor’s 500 Index.
2. A basket of stocks from the Standard & Poor's 500 Index valued at $1 million or more.

Once the NYSE program trading collar is in place, Program Selling can be executed only on an up-tick. That means that the last trade was executed at a higher price than the trade before it. Program Buying can be executed only on a down-tick. That means that the last trade was executed at a lower price than the trade before it.

Program Trading "Sidecars"
In the past, this was another type of NYSE Trading Curb. It was eliminated on Tuesday, February 16, 1999.

Program Trading "Circuit Breakers"
If the Dow Jones Industrial Average falls 10%, trading is halted on the New York Stock Exchange for 60 minutes. If the Dow Jones rallies 10%, there is no restriction. Why? Because program buying and the accompany rally is always perceived as "good".

If the Dow Jones Industrial Average falls 20%, trading is halted on the New York Stock Exchange for two hours. There is no trading halt if it rallies 20%, as that would be perceived as "very very good".

If the Dow Jones Industrial Average falls 30%, trading is halted on the New York Stock Exchange for the 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".

According to the NYSE the current 10, 20 and 30 percent decline levels, respectively, in the DJIA will be as follows: A 1,350 point drop in the DJIA will halt trading for one hour if the decline occurs before 2 p.m.; for 30 minutes if before 2:30 p.m.; and have no effect between 2:30 p.m. and 4 p.m. A 2,700 point drop will halt trading for two hours if the decline occurs before 1 p.m.; for one hour if before 2 p.m.; and for the remainder of the day if between 2 p.m. and 4 p.m. A 4,050 point drop will halt trading for the remainder of the day regardless of when the decline occurs. Point levels are set quarterly by using the DJIA average closing values of the previous month, rounded to the nearest 50 points. The percentage levels are adjusted quarterly.

[netwrangler]

Originally Posted by aiki14

From http://www.programtrading.com/hlc.htm a good resource for program trading info as well.

Aiki, you are a veritable font of knowledge. This is a great post. I encourage all to click on the arrow in your post/quote to get the full story.

So, having gone there, I have to assume that the alert-based trading that I initiate is below the radar for program trading...n'est pas?

[aiki14]

Originally Posted by netwrangler

Aiki, you are a veritable font of knowledge. This is a great post. I encourage all to click on the arrow in your post/quote to get the full story.

So, having gone there, I have to assume that the alert-based trading that I initiate is below the radar for program trading...n'est pas?

Most brokers and all of the discount brokers, prohibit the individual client from basket trading anyway so it's not going to be a problem. It is usually mutual funds or index funds or ETF's who are rebalancing positions and need to move these type of trades. When they cannot do it in the fourth market they move them through ARCA, and this can result in very large trades that will move the prices of 15 or more S&P500 stocks simultaneously and affect the market.

[TonyM]

Curbs In = removal of the DOW 14000 watch and institution of the Curbs-In Market Crash Watch on CNBC's crawler. Or a switch to the DOW 15000 watch.

[Svenwulf]

an interesting development camouflaged on a friday afternoon- nyse eliminating curbs.

NYSE Eliminates Trading Curbs Dating Back to 1987 (Update1)
By Edgar Ortega
Oct. 26 (Bloomberg) -- The New York Stock Exchange said it will no longer impose curbs on computer-program trading that were put in place after the crash of 1987, claiming they're no longer as effective in damping swings in prices.
The exchange will stop prohibiting brokerages from entering some program trades when the NYSE Composite Index rises or falls more than 2 percent, according to a notice sent to member firms today. The so-called collars had been in effect since 1988 and were triggered 17 times this year, according to a filing with the Securities and Exchange Commission.
``Volatility is neither restrained nor enhanced by the imposition of the collars,'' the NYSE said in the SEC filing making the changes effective. ``The exchange is making this change since it does not appear that the approach of market volatility envisioned by the use of these collars is as meaningful today as when the rule was formalized in the late 1980s.''


http://www.bloomberg.com/apps/news?p...D8w&refer=home

[netwrangler]

Originally Posted by Svenwulf

an interesting development camouflaged on a friday afternoon- nyse eliminating curbs.

NYSE Eliminates Trading Curbs Dating Back to 1987 (Update1)
By Edgar Ortega
Oct. 26 (Bloomberg) -- The New York Stock Exchange said it will no longer impose curbs on computer-program trading that were put in place after the crash of 1987, claiming they're no longer as effective in damping swings in prices.
The exchange will stop prohibiting brokerages from entering some program trades when the NYSE Composite Index rises or falls more than 2 percent, according to a notice sent to member firms today. The so-called collars had been in effect since 1988 and were triggered 17 times this year, according to a filing with the Securities and Exchange Commission.
``Volatility is neither restrained nor enhanced by the imposition of the collars,'' the NYSE said in the SEC filing making the changes effective. ``The exchange is making this change since it does not appear that the approach of market volatility envisioned by the use of these collars is as meaningful today as when the rule was formalized in the late 1980s.''


http://www.bloomberg.com/apps/news?p...D8w&refer=home

Pardon my skepticism, but who benefits from this change? I'm sorry, but I don't believe "The Free Market" is a pragmatic answer.

So, does anyone have any data that supports or refutes this decision?

[Svenwulf]

so when do they drop the curbs? they are in today...