Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the New York Stock Exchange, Inc. Relating to Amendments to Exchange Rule 80B (``Trading Halts Due to Extraordinary Market Volatility'')

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38047; File No. SR-NYSE-96-38]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the New York Stock Exchange, Inc. Relating to Amendments to

Exchange Rule 80B (``Trading Halts Due to Extraordinary Market

Volatility'')

December 13, 1996.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that

on December 11, 1996, the New York Stock Exchange, Inc. (``NYSE'' or

``Exchange'') filed with the Securities and Exchange Commission

(``Commission'' or ``SEC'') the proposed rule change relating to

certain market-wide circuit breaker provisions as described in Items I,

II and III below, which Items have been prepared by the Exchange. The

Commission is publishing this notice to solicit comments on the

proposed rule change from interested persons.

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\1\ 15 U.S.C. 78s(b)(1).

\2\ 17 CFR 240.19b-4.

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I. Self-Regulatory Organization's Statement of the Terms of

Substance of the Proposed Rule Change

The Exchange proposes to amend its Rule 80B (Trading Halts Due to

Extraordinary Market Volatility--``circuit breakers'') to increase the

trigger levels for its circuit breakers. The existing circuit breakers

would be triggered if the Dow Jones Industrial Average (``DJIA'') \3\

declines by 250 and 400 points, respectively, from its previous day's

close. A 250 points decline would result in a one-half hour trading

halt, while a 400 points decline would cause trading to halt for an

additional hour. The Exchange proposes establishing new thresholds of

350 and 550 points decline in the DJIA before the respective one-half

hour and one hour circuit breakers are triggered. The Exchange seeks to

effect these changes on a one-year pilot basis.

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\3\ ``Dow Jones Industrial Average'' is a service mark of Dow

Jones & Company, Inc.

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II. Self-Regulatory Organization's Statement of, the Purpose of and

Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the self-regulatory organization

included statements concerning the purpose of and basis for the

proposed rule change and discussed any comments it received on the

proposed rule change. The text of these statements may be examined at

the places specified in Item IV. The self-regulatory organization has

prepared summaries, set forth in Sections A, B, and C below, of the

most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

1. Purpose

Rule 80B (Trading Halts Due to Extraordinary Market Volatility) is

the Exchange's codification of the several recommendations for

``circuit breakers'' which were made in the wake of the market break of

1987. The current rule, which is due to expire April 30, 1997, provides

that if the DJIA falls 250 or more points below its previous trading

day's closing value, trading in all stocks on the Exchange shall halt

for one-half hour. Further, the rule provides for an additional one

hour trading halt if on that same day the DJIA declines by 400 points

or more below its previous trading day's closing value.\4\ Although the

Rule was amended in July 1996 to shorten the time periods for market-

wide trading halts, the levels of the circuit breakers themselves have

not been adjusted since the rule was first adopted.\5\ The Exchange

believes that, at this time, it is appropriate to amend Rule 80B to

raise the circuit breakers from 250 points to 350 points and from 400

points to 550 points.

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\4\ See Securities Exchange Act Release No. 37890 (Oct. 29,

1996) 61 FR 56983.

\5\ See supra note 4. See also, Securities Exchange Act Release

Nos. 36563 (December 7, 1995), 60 FR 64084; 36414 (Oct. 25, 1995) 60

FR 55630; 26440 (January 10, 1989) 54 FR 1830; 26368 (December 16,

1988), 53 FR 51942; and 26198 (October 19, 1988), 53 FR 41637.

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Rule 80B was approved by the Commission in October 1988 as a one-

year pilot and has been extended on a year to year basis since then,

except for

[[Page 67088]]

in October 1996, when it was extended for only six months until April

30, 1997.\6\ When circuit breakers were first adopted, the DJIA was

about 2100 points. A 250 point drop would have represented

approximately a 12% decline, and a 400 point drop would have

represented roughly a 19% decline in the average. Rule 80B has never

been invoked, as the DJIA has not declined by 250 points or more since

the rule was adopted. The largest decline occurred on March 8, 1996,

when the DJIA fell intra-day 217 points below its previous day's

closing value. Today, with the DJIA at about 6500 points, a 250 or 400

point drop would represent a much smaller percentage decline in the

average (3.8% and 6.2%, respectively).

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\6\ See supra note 4.

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The proposed circuit breakers of 350 and 550 points would represent

around a 5.4% and 8.5% decline in the DJIA, which the Exchange

considers to be significant market declines, and thus represent

appropriate levels at which to halt trading. The proposed trigger

values take into account the rise in market values since the Rule was

first adopted, which also recognizing the fact that the original

trigger values have never been reached. The Exchange believes that the

new trigger values in Rule 80B should be stated in absolute numbers,

rather than in terms of percentages of the DJIA, in order to facilitate

understanding by all market participants as to exactly when the circuit

breakers will be utilized.

The Exchange seeks to effect these changes on a one-year pilot

basis. The adoption of amendments to Exchange Rule 80B would be

contingent upon the adoption of amended rules or procedures

substantively identical to Rule 80B by:

(1) all United States stock exchanges and the National Association

of Securities Dealers with respect to the trading stocks, stock options

and stock index options; and,

(2) all United States futures exchanges with respect to the trading

of stock index futures and options on such futures.

The Exchange believes that an all-market trading halt requirement

at appropriate levels will promote stability and investor confidence

during a period of significant stress by providing market participants

with a reasonable opportunity to become aware of and respond to

significant price movements, thereby facilitating in an orderly manner

the maintenance of an equilibrium between buying and selling interest.

2. Statutory Basis

The basis under the Act for this proposed rule change is the

requirement under Section 6(b)(5) that an Exchange have rules that are

designed to promote just and equitable principles of trade, to remove

impediments to, and perfect the mechanism of a free and open market and

a national market system and in general, to protect investors and the

public interest. The Exchange believes that amending Rule 80B on a one-

year pilot basis is consistent with these objectives in that revised

trigger levels take into consideration the rise in market values since

the rule was first adopted, while recognizing that the original trigger

levels have not been reached since they were adopted.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange does not believe that the proposed rule change will

impose any burden on competition that is not necessary or appropriate

in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed

Rule Change Received from Members, Participants or Others

The Exchange has neither solicited nor received written comments on

the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for

Commission Action

Within 35 days of the date of publication of this notice in the

Federal Register or within such longer period (i) as the Commission may

designate up to 90 days of such date if it finds such longer period to

be appropriate and publishes its reasons for so finding or (ii) as to

which the self-regulatory organization consents, the Commission will:

(A) by order approve the proposed rule change, or

(B) institute proceedings to determine whether the proposed rule

change should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views and

arguments concerning the foregoing. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street N.W., Washington, D.C. 20549.

Copies of the submission, all subsequent amendments, all written

statements with respect to the proposed rule change that are filed with

the Commission, and all written communications relating to the proposed

rule change between the Commission and any person, other than those

that may be withheld from the public in accordance with the provisions

of 5 U.S.C. Sec. 552, will be available for inspection and copying in

the Commission's Public Reference Section, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of such filing will also be available

for inspection and copying at the principal office of the Exchange. All

submissions should refer to the File No. SR-NYSE-96-38 and should be

submitted by January 9, 1997.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\7\

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\7\ 17 CFR 200.30-3(a)(12).

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Jonathan G. Katz,

Secretary.

[FR Doc. 96-32235 Filed 12-18-96; 8:45 am]

BILLING CODE 8010-01-M