NYSE Retiring LRP Ahead of Limit Measures

The LRP will be retired against NYSE's objections, ahead of the SEC's plan to institute Limit-Up Limit-Down (LULD) measures in US exchanges, designed to curb the kind of volatility seen during the May 2011 Flash Crash. During that event, the Dow Jones Industrial Index plummeted by nearly 1,000 points over the course of minutes, recovering most of its value shortly thereafter but providing a sharp shock to the market and instituting a wider debate over the role of high-frequency trading (HFT).

NYSE's LRP works by temporarily converting the electronic market for a volatile security into an auction, giving the opportunity for liquidity provision. The exchange believes that the program has been of real benefit, despite the SEC's insistence on pushing ahead with LULD measures, which will take sovereignty over NYSE's own efforts.

"Indeed, for many years, LRPs have been a key selling point of the exchange to both investors and listed companies who, like the Exchange, believe that stable prices further the purposes of protecting investors against price swings, thereby enhancing investor confidence in the US securities markets," said NYSE in its filing with the SEC.

LULD is due to come into force later this year, which will essentially halt trading in a security when it breaches price limits in extraordinary excess of its normal traded price, or far below, due to aberrant conditions. LULD works on price bands determined according to trading, and single-stock circuit breakers will be phased out. While NYSE believes the LRP is beneficial, some market commentators have said that the SEC's preferred approach is one of a homogenous mechanism across US exchanges, rather than individual, idiosyncratic measures at each one.