Further to my posts earlier today and last Friday, here’s an article from Dow Jones Newswires earlier today: “Specialists’ Moves Mon May Have Staved Off Bigger Mkt Fall.” Sorry, no link available, but I’ll keep an eye out for this being picked up in the Wall Street Journal or elsewhere. Excerpts:

Black Monday could have been even darker.

Proponents of open-outcry trading say that specialist market makers on the New York Stock Exchange, faced with a flood of selling orders late Monday, took the buy side or aggressively solicited for buyers on several large financial companies that were selling off. By assuming the role of buyers or soliciting them, these specialists may have helped limit losses at the bell. …

… “If this was purely electronic, it could have been down 1200 or 1300 on the Dow,” said Bernie McSherry, a senior vice president with Cuttone & Co., the largest independent floor operator at the NYSE. …

“[Specialists] created trades that otherwise would not have occurred…when someone alerts a broker and says look at this, you create an interest. That facilitates trading that doesn’t happen in other markets,” said Dave Humphreville, president of the Specialist Association, which represents market makers on the floor of the NYSE.

Fourth quarter? Yes, it’s here tomorrow. Time flies when you’re having, er, um, …..fun?

Anyway, here are the new levels for the NYSE’s circuit-breakers, which are updated quarterly. Excerpt from the press release:

Circuit-breaker points represent the thresholds at which trading is halted marketwide for single-day declines in the Dow Jones Industrial Average (DJIA). Circuit-breaker levels are set quarterly as 10, 20 and 30-percent of the DJIA average closing values of the previous month, rounded to the nearest 50 points.

In fourth-quarter 2008, the 10, 20 and 30-percent decline levels, respectively, in the DJIA will be as follows:

Level 1 Halt
A 1,100-point drop in the DJIA before 2 p.m. will halt trading for one hour; for 30 minutes if between 2 p.m. and 2:30 p.m.; and have no effect if at 2:30 p.m. or later unless there is a level 2 halt.

Level 2 Halt
A 2,200-point drop in the DJIA before 1:00 p.m. will halt trading for two hours; for one hour if between 1:00 p.m. and 2:00 p.m.; and for the remainder of the day if at 2:00 p.m. or later.

Level 3 Halt
A 3,350-point drop will halt trading for the remainder of the day regardless of when the decline occurs.

Background:
Circuit-breakers are calculated quarterly. The percentage levels were first implemented in April 1998 and are adjusted on the first trading day of each quarter. In 2008, those dates are Jan. 2, April 1, July 1 and Oct. 1.

And here’s a graphic that shows the levels in easier form.

Here’s hoping this is the only time you think about this until the end of the year, when we again do a quarterly adjustment, which again, I hope, will be forever a non-event.

Yesterday, buyers basically went on strike. On NYSE, down volume dwarfed up volume, 1.8 billion (with a “b”) shares versus 45.7 million (yes, with an “m”) shares. At the close, sell imbalances were numerous and heavy. In some larger issues, the shares offered outnumbered the shares bid by a margin of millions.

Against that backdrop, NYSE specialists executed 141.5 million shares, or more than double their average participation of 63.4 million shares year-to-date. When everyone else was running for the exit, particularly at the close when risk was greatest (because who in their right mind wanted to go home long?) specialists stepped up their capital commitment, to counter plunging prices.

If you don’t think much of that, I ask you: who else was stepping up like that, especially at the close?

Before the close, specialists also were actively reaching out to the entire Street to try to attact buyers to help counter the imbalances.

Those are both value-added actions that don’t happen in purely electronic markets.

Those actions are to be expected, because specialists are accountable for maintaining fair and orderly markets, but I respectfully suggest it shouldn’t be taken for granted, particularly in times like these.

I posted here last week about how this kind of differentiation was demonstrated on Sept. 19. Yesterday was a good example as well.

Yesterday, buyers basically went on strike. On NYSE, down volume dwarfed up volume, 1.8 billion (with a “b”) shares versus 45.7 million (yes, with an “m”) shares. At the close, sell imbalances were numerous and heavy. In some larger issues, the shares offered outnumbered the shares bid by a margin of millions.

Against that backdrop, NYSE specialists executed 141.5 million shares, or more than double their average participation of 63.4 million shares year-to-date. When everyone else was running for the exit, particularly at the close when risk was greatest (because who in their right mind wanted to go home long?) specialists stepped up their capital commitment, to counter plunging prices.

If you don’t think much of that, I ask you: who else was stepping up like that, especially at the close?

Before the close, specialists also were actively reaching out to the entire Street to try to attact buyers to help counter the imbalances.

Those are both value-added actions that don’t happen in purely electronic markets.

Those actions are to be expected, because specialists are accountable for maintaining fair and orderly markets, but I respectfully suggest it shouldn’t be taken for granted, particularly in times like these.

I posted here last week about how this kind of differentiation was demonstrated on Sept. 19. Yesterday was a good example as well.

The SEC has just approved our proposal to double the bandwitdhs of the Liquidity Replenishment Points (LRPs). The change goes into effect tomorrow, Wednesday, 1 Oct.

LRPs are a bit too market-mechanics-minutia for some of you, but many of you traders have written to me about them. You’ve asked us to expand the ranges because the LRPs are triggered too easily, interrupting the flow of trading in a way that was never intended. Again, thanks for your input; we hear you.

About the best explanation I’ve seen of LRPs and how we’re changing them was this excerpt from our proposal, which I blogged about when we filed it a couple of weeks ago:

Pursuant to NYSE Rule 1000(a)(iv), LRPs are pre-determined price points that function to moderate volatility, improve price continuity, and foster market quality in a particular security by temporarily converting the electronic market to an auction market and permitting new orders, the Crowd, or the specialist, to add liquidity. Pursuant to NYSE Rule 60, Autoquote is suspended when an LRP is reached and resumes in no more than five to ten seconds after the LRP is reached. Autoquote resumes unless there is interest on the NYSE Display Book® system that would lock or cross the market. In such case, Autoquote will resume with a manual transaction.

LRPs are calculated by adding and subtracting a value to the security’s last sale price. The LRP values are based on an examination of trading data and vary based on the security’s NYSE average daily volume (“ADV”), price, and volatility. The values used to calculate the LRP’s range do not change intraday and are disseminated daily by the Exchange on its website.

Modification to LRP Value Ranges

The Exchange proposes to amend NYSE Rule 1000(a)(iv) to double the current LRP ranges in order to limit the number of times that an LRP is reached and the total number of times during the trading day that automatic execution is suspended as a result of an LRP being triggered. In this way the Exchange will allow for more continuous automatic executions of securities. While the purpose of the LRP is to dampen volatility and to provide market participants with time to react, the Exchange believes that the proposed amendment is necessary to lessen artificial limitations on trading and will ultimately provide beneficial trading opportunities for its customers. As a means of controlling volatility, LRPs are intended to be triggered infrequently, i.e., when the market is experiencing a large price movement (based on a security’s typical trading characteristics or other market conditions) over short periods of time during the trading day. If an LRP is triggered too frequently, trading in the security is overly restrained and does not meet the competitive needs of NYSE customers. As such the NYSE believes that doubling the current LRP value ranges will better facilitate the natural trading pattern of a particular security.

For those of you who have been running up against LRPs too frequently, I hope this helps.

On the trivia front:

Today in NYSE History (NYSE.com)
30 Sept. 1941 — A reorganization of the Exchange centralized policy-making authority in the Board of Governors and the president, supported by an administrative staff.

That’s perhaps not the most scintillating chapter of Today in NYSE History, so here’s a bit more about this day:

On This Day (NYTimes.com) —
1924 — Truman Capote is born (died 1984).
1927 — Babe Ruth hits his 60th home run. (Hey, don’t begrudge this brokenhearted Yankee fan a brief thought of past glory.)
1928 — Elie Weisel, author and Nobel Peace Prize recipient (and one-time ringer of the NYSE bell!) is born.
1955 — James Dean is killed, at the age of 24.
1962 — James Meridith suceeds on his fourth try to register as the first black student at the University of Mississippi.

Our CEO Duncan Niederauer was on CNBC, Fox Business and Bloomberg TV shortly before the close, talking about the failure of the bailout bill and the impact on financial markets and the nation. The latter two networks have not posted links to the video; at least not yet. Here is a link to the three-minute CNBC interview, and a couple of main points Duncan made:

– Asked what exchanges can do to “facilitate the reduction in fear,” Duncan mentioned two things:
1) Continuing the trading of stocks as fluid as we can, and handling the trading volume, “but this is dwarfed by the other problem,” he said, which is:
2) Taking the bilateral risk out of the market by setting up clearing facilities to report, print, clear and “get bilateral risk out of the equation.” He said exchanges are taking this up with government leaders, but that the bailout bill has dominated Washington’s focus, and attention must return to addressing bilateral risk.

– On coming changes in the financial business, he foresees additional consolidation, less leverage and with it less profitability, and, “I’m not in favor of more regulation, but we have no choice here.”

– His message to investors and their congressional representatives: Congress needs to return to the bailout bill and work it out; “the country needs this proposal as a first step,” and, “‘Main Street is connected to Wall Street whether people realize it or not. I think that’s evidenced by what you’re seeing in the market today.”

For those keeping score (and isn’t that everyone?), today’s 777.68-point drop in the Dow Industrials is the biggest point decline in history, topping the previous record 684.81-point fall on Sept. 17, 2001. But today was nowhere near the biggest declines in percentage terms.

Our CEO Duncan Niederauer was on CNBC, Fox Business and Bloomberg TV shortly before the close, talking about the failure of the bailout bill and the impact on financial markets and the nation. The latter two networks have not posted links to the video; at least not yet. Here is a link to the three-minute CNBC interview, and a couple of main points Duncan made:

– Asked what exchanges can do to “facilitate the reduction in fear,” Duncan mentioned two things:
1) Continuing the trading of stocks as fluid as we can, and handling the trading volume, “but this is dwarfed by the other problem,” he said, which is:
2) Taking the bilateral risk out of the market by setting up clearing facilities to report, print, clear and “get bilateral risk out of the equation.” He said exchanges are taking this up with government leaders, but that the bailout bill has dominated Washington’s focus, and attention must return to addressing bilateral risk.

– On coming changes in the financial business, he foresees additional consolidation, less leverage and with it less profitability, and, “I’m not in favor of more regulation, but we have no choice here.”

– His message to investors and their congressional representatives: Congress needs to return to the bailout bill and work it out; “the country needs this proposal as a first step,” and, “‘Main Street is connected to Wall Street whether people realize it or not. I think that’s evidenced by what you’re seeing in the market today.”

For those keeping score (and isn’t that everyone?), today’s 777.68-point drop in the Dow Industrials is the biggest point decline in history, topping the previous record 684.81-point fall on Sept. 17, 2001. But today was nowhere near the biggest declines in percentage terms.

This NYSE Regulation press release announces that we’re suspending WaMu common stock and two preferred issues. Sorry we said on Friday that we would open WaMu for one trade that day; we spoke too soon. The press release explains:

NYSE Regulation determined that these securities are no longer suitable for trading in light of the September 25, 2008 news announcements regarding the fact that JP Morgan Chase & Co. has acquired all the deposits, assets, and certain liabilities of the Company’s banking operations in a transaction facilitated by the Federal Deposit Insurance Corporation (FDIC), effective immediately. Excluded from the transaction are the senior unsecured debt, subordinated debt and preferred stock of the Company’s banks. In making its determination,

NYSE Regulation also considered the substantial reduction in the scope of the Company’s operations as a result of this transaction and the uncertainty regarding its effect on the Company’s equityholders.

In addition, NYSE Regulation also noted the Company’s subsequent filing for Chapter 11 protection in the US Bankruptcy Court in Wilmington, Delaware.

Lastly, NYSE Regulation considered the abnormally low price of the Company’s common stock in pre-market trading on September 26, 2008, with trades as low as $0.15 prior to the regulatory trading halt in the Company’s securities at the NYSE market open.

Separately, Rule 48 will be in effect again today on NYSE, meaning that pre-opening indications are not required.

If you’re not already subscribing to our System Status alerts and Trader Updates, I can’t think of a better time to start. The instructions to subscribe are on the page.

This NYSE Regulation press release announces that we’re suspending WaMu common stock and two preferred issues. Sorry we said on Friday that we would open WaMu for one trade that day; we spoke too soon. The press release explains:

NYSE Regulation determined that these securities are no longer suitable for trading in light of the September 25, 2008 news announcements regarding the fact that JP Morgan Chase & Co. has acquired all the deposits, assets, and certain liabilities of the Company’s banking operations in a transaction facilitated by the Federal Deposit Insurance Corporation (FDIC), effective immediately. Excluded from the transaction are the senior unsecured debt, subordinated debt and preferred stock of the Company’s banks. In making its determination,

NYSE Regulation also considered the substantial reduction in the scope of the Company’s operations as a result of this transaction and the uncertainty regarding its effect on the Company’s equityholders.

In addition, NYSE Regulation also noted the Company’s subsequent filing for Chapter 11 protection in the US Bankruptcy Court in Wilmington, Delaware.

Lastly, NYSE Regulation considered the abnormally low price of the Company’s common stock in pre-market trading on September 26, 2008, with trades as low as $0.15 prior to the regulatory trading halt in the Company’s securities at the NYSE market open.

Separately, Rule 48 will be in effect again today on NYSE, meaning that pre-opening indications are not required.

If you’re not already subscribing to our System Status alerts and Trader Updates, I can’t think of a better time to start. The instructions to subscribe are on the page.

This Trader Update has a new, consolidated list of all issues from NYSE, Amex and Nasdaq that cannot be shorted.

You can hate the ban on shorting these stocks, love it, or be indifferent, but at least it’s easier to find which stocks are covered.

Today in NYSE History
29 Sept. 1952 — Trading hours were extended by a half hour - 10:00 a.m. to 3:30 p.m., and Saturday trading was dropped.

And may Saturday trading never come back.