The New York Stock Exchange removed a slew of exchange traded funds from a new pilot program designed to tighten bid/ask spreads on lightly traded products after unexpected trade disruptions.
The NYSE pulled out 530 funds from its limit-up/limi-down (LULD) trading system, reports Oily Ludwig for IndexUniverse.
“NYSE Arca will work with the SEC and other markets to identify the best methodology for incorporating low volume derivative securities into the LULD Plan,” the Big Board said in a statement. “In the interim, we will temporarily remove these securities from the LULD Pilot to ensure the pilot operates as intended and address the potential adverse impact of these types of trading halts.” [New Rules Trigger ETF Trading Halts]
Once all the kinks are worked out, the program would protect investors from harmful trades due to widening spreads, providing predictable and reliable orders. The new system would also replace the old circuit breaker fail safe.
Under the LULD system, trades aren’t allowed to take place over a specified percentage above or below the average price in the preceding five-minute period, with 10% on low-volatile trading days and under 10% on high-volatility days. Trades are paused for five minutes if prices don’t shift away from the specified limits within 15 seconds.
The old circuit-breaker system pauses trades for five minutes when an ETF’s price moves 10% in five minutes.
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Max Chen contributed to this article.