Program Trading Curbs
The NYSE formerly implemented a curb on program trading under certain conditions. A program trade is defined by the NYSE as a basket of stocks from the S&P 500 where there are at least 15 stocks or where the value of the basket is at least $1 million. Such trades are generally automated.
When activated, the curbs restricted program trades to sell on upticks and buy only on downticks.
The trading curbs would become activated whenever the NYSE Composite Index moved 190 points or the Dow Jones Industrial Average moved 2% from its previous close. They remained in place for the rest of the trading day or until the NYSE Composite Index moved to within 90 points or the Dow moved within 1% of the previous close.
Since over 50% of all trades on the NYSE are program trades, this curb was supposed to limit volatility by mitigating the ability of automated trades to drive stock prices down via positive feedback.
This curb was fairly common, and financial television networks such as CNBC often referred to it with the term "curbs in."
On November 7, 2007, the NYSE confirmed that the exchange has scrapped this rule as of November 2. The reason given for the rule's elimination was its ineffectiveness in its purpose of curbing market volatility since it was enacted in the wake of the 1987 stock market crash under the belief that it may help prevent another catastrophic market crash.
Read more about this topic: Trading Curb
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