The little known rule that blocked a total market crash today was invoked to stop all chaos from breaking out. That rule is called rule 48. The goal of Rule 48 is to ensure orderly trading amid financial market turbulence, and this it did successfully. Just as other markets around the world did, they slowed the chaos by invoking rules.
However, these “little rules” can only stop the chaos for a short time because what is known around the world is that a collapse is coming and this appears to have been a glimpse of what September is going to bring to economies around the world.
In a historic move, the New York Stock Exchange invoked the little-used Rule 48 to pre-empt panic selling at the stock market open on Monday. This followed a dramatic drop in pre-market open futures, with the Dow Jones Industrial Average futures falling more than 700 points.
The goal of Rule 48 is to ensure orderly trading amid financial market turbulence. It’s only used in the event that extremely high market volatility is likely to have a floor-wide impact on the ability of designated market makers (DMMs) to disseminate price indications before the bell.
Unlike a circuit breaker that stops stock trading, Rule 48 speeds up the opening by suspending the requirement that stock prices be announced at the market open. Those prices have to be approved by stock market floor managers before trading actually begins. Without that approval, stock trading can begin sooner. –Rule 48
U.S. stocks plunged to lowest levels since last October after a rout in Chinese stocks triggered a world-wide selloff of risky assets such as equities. The Dow Jones Industrial Average DJIA, -4.25% dropped 1000 points, or 6%, to 15,441. The S&P 500 SPX, -4.08% opened 100 points, or 4.9%, lower at 1,874. The benchmark index is down more than 10% from its peak reached on May 21. The Nasdaq Composite COMP, -4.56% began the day down 360 points, or 7.6%, to 4,349.
The grim data was predictable, as before the opening the Nasdaq 100 Index contract dropped 5 percent reaching its daily loss limit. Companies like Apple and Netflix also suffered from a massive sell-off, sinking at least 5.7 percent amid the panic triggered by Chinese stock markets collapse.
Dow futures plummeting more than 800 points has allowed The New York Stock Exchange to apply Rule 48 for the Monday stock market open, according to Dow Jones.
The rule was last invoked during the financial crisis, and allows the NYSE to open stocks without indication. “It was set up for situations like this,” Art Hogan, chief market strategist at Wunderich Securities told CNBC.
The Dow Jones Industrial Average dropped 1000 points or 6%, to 15,441.
— Bloomberg TV (@BloombergTV) August 24, 2015