NYSE Invokes Rule 48 For Third Straight Day Amid Market Volatility

The New York Stock Exchange invoked Rule 48 for the third time this week on Wednesday morning in a historic move aimed at taming market volatility.

Rule 48 is a little-used safeguard designed to help ensure orderly trading takes place even amid market panic. The NYSE previously implemented Rule 48 on Monday morning, ahead of the 700-point-drop in the Dow Jones Industrial Average futures, and then utilized it again on Tuesday ahead of the session’s opening bell.

Approved by the Securities and Exchange Commission on December 6, 2007, Rule 48 has hardly been used since. It was implemented on both Tuesday, January 22, 2008, and on Thursday, May 20, 2010, amid investor fears, according to CNBC, but it has also been used more recently. Between August and September 2011, Rule 48 was invoked to tame markets amid fears over a European debt crisis. It was nearly applied in early 2015, when massive snowstorms swept across much of the U.S., as the International Business Times notes.

Unlike a circuit breaker, which aims to cut off trading to stem volatility, Rule 48 actually speeds up the opening of the markets. Simply put, the rule suspends the requirement that stock prices be announced at the market open, allowing trading to begin sooner. Normally, stock prices must be approved by floor managers at the exchange before trading actually begins.

Certain conditions must exist in order for the exchange to implement Rule 48. Specifically, substantial futures activity or volatility from the previous day’s trading session can be used as a justification to invoke the rule. A substantial government announcement or a high volume of pre-opening interest indications can also cause Rule 48 to be considered.

While high volatility was expected on Wednesday, stocks opened higher, with the Dow rising 433 points before retreating. By the end of the day’s first half hour of trading activity, the Dow had reached a gain of 300 points or 1.9 percent, at 15,966.

In what is likely a first-of-its-kind event for a somewhat obscure stock exchange protocol, Rule 48 even began trending on Twitter on Wednesday as news of its third implementation spread. Casual observers of the stock exchanges who are unfamiliar with the protocol also began to search out the full text of Rule 48, wondering at its implications for the markets.

[Photo by Spencer Platt / Getty Images]

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