Sunday, August 3, 2014

In the Event of a 3300 Point Decline on Monday, The NYSE Will Close for the Day

Well, technically it would be a 385 point decline in the S&P 500 as the 2013 amendments to rule 80B dropped the DJIA as the reference index but it really doesn't matter because at that level of panic the correlation between the two indices approaches "We're all going to die" or 1, whichever way you choose to portray it.
Anyhoo,
...When in doubt, go with the most hysterical headline.
(Rule one of blogging is that the End Of The World will be good for page views.)
-Joel Achenbacher
The Washington Post
From the New York Stock Exchange:
...In 2012, in connection with its approval of the Regulation NMS Plan to Address Extraordinary Market Volatility, commonly referred to as the Limit Up – Limit Down Plan, the SEC approved amendments to Rule 80B (Trading Halts Due to Extraordinary Market Volatility) that revise the halt provisions and circuit-breaker levels. Amended Rule 80B is operative during the pilot period of the Limit Up – Limit Down Plan.

Rule 80B
Effective April 8, 2013, amended Rule 80B will be in effect. Amended Rule 80B replaces:
  • the DJIA with the S&P 500 as the benchmark index for measuring a market decline;
  • the quarterly calendar recalculation of Rule 80B triggers with daily recalculations; and
  • the 10%, 20%, and 30% market decline percentages with 7%, 13%, and 20% market decline percentages.
Amended Rule 80B also modifies:
  • the length of the trading halts associated with each market decline level; and
  • the times when a trading halt may be triggered.
Specifically, the circuit-breaker halt for a Level 1 (7%) or Level 2 (13%) decline occurring after 9:30 a.m. Eastern and up to and including 3:25 p.m. Eastern, or in the case of an early scheduled close, 12:25 p.m. Eastern, would result in a trading halt in all stocks for 15 minutes. If the market declined by 20%, triggering a Level 3 circuit-breaker, at any time, trading would be halted for the remainder of the day.
A Level 1 or Level 2 halt can only occur once per trading day. For example, if a Level 1 Market Decline was to occur and trading was halted, following the reopening of trading, the NYSE would not halt the market again unless a Level 2 Market Decline was to occur. Likewise, following the reopening of trading after a Level 2 Market Decline, the NYSE would not halt trading again unless a Level 3 Market Decline were to occur, at which point, trading in all stocks would be halted until the primary market opens the next trading day.
This cheery line of thought was last explored in 2011, before the 2013 amendments so I figured an update would be in order.
We are not calling for a 20% decline in the broad index.
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