The New York Stock Exchange (NYSE) invoked Rule 48 again on Tuesday to prevent panic trading during the opening of the stock markets.
The NYSE implemented Rule 48 for the second consecutive day– a historic move. Yesterday, the exchange invoked Rule 48 before the opening of the market after observing a significant decline in the pre-market open futures including the Dow Jones, which experienced a 700-point drop.
Objective of Rule 48
The Securities and Exchange Commission (SEC) approved Rule 48 on December 6, 2007. Its primary objective is to ensure an orderly trading amid a dramatic volatility in the financial market that will likely have a floor-wide impact on the ability of designated market makers (DMMS) to arrange a fair and orderly opening.
The NYSE can invoke Rule 48 after determining the existence of certain conditions that would disrupt the market including volatility in the day’s previous trading session, trading in foreign markets before the open, substantial activity in the futures market before the open, and the volume of pre-opening indications of interest, and government announcements.
U.S. stock markets rebound
The Dow Jones increased more than 300 points during the first few minutes when the market opens on Tuesday morning. The index increased more than 600 points for a short time during the premarket trading, which implied a 450-point rebound and signaled that investors ignored a deeper selloff in China’s stock market.
The S&P 500, NASDAQ, and S&P 500 also climbed today. The U.S. stock markets recovered today after the People’s Bank of China reduced its benchmark lending rate to 4.6%. The Chinese central bank also lowered its reserve requirements (RRR) to 18% for a majority of big banks.
The People’s Bank of China made the decision after Chinese equities suffered another decline today as investors were disappointed by the government’s lack of action to address the country’s deepening economic slowdown based on latest data.
The major stock markets in China declined more than 7% on Tuesday and recorded its lowest levels since December. Yesterday, the Chinese stock markets dropped more than 8%.
In a statement, The People’s Bank of China said, “Currently, there is still downward pressure on China’s economic growth, There is also big volatility in global financial markets, which require more flexible usage of monetary policy tools.”