When markets are turbulent, it’s time for Rule 48

Mark Garrison Sep 1, 2015
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When markets are turbulent, it’s time for Rule 48

Mark Garrison Sep 1, 2015
HTML EMBED:
COPY

Many of the recent wild openings of the stock market came with a footnote: the New York Stock Exchange invoked Rule 48. Tuesday was one of those days. Normally an obscure rule in a rulebook full of them, Rule 48 is currently having a star turn because of recent volatile trading.

Rule 48 is long and complicated. But to keep it simple, think of Rule 48 as letting the NYSE floor staff get straight to opening the market.

It’s unique to NYSE, because real people manage the exchange’s opening. The folks in blue jackets you see on TV in front of computer screens are called designated market makers, or DMMs.

A look at how market makers work:

On a volatile morning, determining a stock’s opening price can take more time. Stocks don’t open at the same price where they closed the day before because stuff happens overnight that affects companies. If crazy stuff happens to a company, the DMM may have to give out additional information, which can delay the stock’s opening.

But if the whole market is volatile, that could mean a widespread NYSE opening delay. Rule 48 is designed to avoid delaying the opening and the market anxiety a delay could create. Even if it’s a rocky day on the floor, Wall Street still wants to know the numbers.

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