What are the curbs that go in at the NYSE when the market goes up too fast or down too fast?

Question

Recently I've been watching CNBC and during the last couple days they've been saying that trading curbs have gone in due to the volatility. What does this mean? What are the curbs?

Answer 1

The curbs are restrictions on the the computer trading of the exchange this way they can limit the swings of the days. The curbs that have been instated over the past few days have been the NYSE collar. These are stated when the NYSE exchange moves more then 2% in a day. This specific rule only affects the trading of S&P 500 stocks. For a complete list go to http://invest-faq.com/cbc/exch-circuit-brkr.html.

Answer 2

automated trading [computer programs making the decisions] is banned for the rest of the day.

***
there are a fairly large number of automated trading programs out there swinging huge amounts of money. many of them are trend followers in very short time frames -- if markets suddenly surge in one direction, they pile on for the ride.

this balloons trading volume and, in theory, makes the size of market swings bigger.

imho, this is a holdover from the days when NYSE trades all went to the trading floor where people handled them -- people with limited attention abilities in terms of number of trades per minute. NASDAQ is all electronic and sees no need for such trading curbs.

now that some 90% of NYSE volume is also electronic, I expect this rule will disappear as soon as floor traders at the NYSE are all retired.


:-)