While reading an article “Stocks: Time to Slow Things Down?” it occurred to me that I haven’t seen “curbs in” on CNBC in a long time. After a quick search I discovered that the NYSE scrapped curbs back in November 2007 (emphasis is mine):

The NYSE formerly implemented a curb on program trading whenever the NYSE Composite Index moved 190 points or more from its previous close, and remained in place for the rest of the trading day or until the gain or loss had decreased to 90 or fewer points. This curb permitted program sales to be executed only on upticks and program buys on downticks. A program trade is defined by the NYSE as a basket of stocks from the S&P 500 where there are at least 15 stocks or where the value of the basket is at least $1 million. Such trades are generally computer automated. Since over 50% of all trades on the NYSE are program trades, this curb limited volatility by mitigating the ability of automated trades to drive stock prices down via positive feedback.

This curb was fairly common, and financial television networks such as CNBC often referred to it with the term “curbs in.”

On November 7, 2007, the NYSE confirmed that the exchange has scrapped this rule as of November 2. The reason given for the rule’s elimination was its ineffectiveness in curbing market volatility.

That ‘Slow Things Down’ article talks about possibly reinstating the uptick rule and other measures to stop cascading moves. People love to point to the removal of the uptick rule as a major contributing factor in the current slide but I hadn’t heard anybody mention the lack of program trading curbs. I’d sure like to know how the NYSE came to the conclusion that the curbs were ineffective. It seems to me that the removal of the curbs combined with the removal of the uptick rule was a deadly combination.

Jon C. Ogg wrote an article about reinstating program trading curbs last month. Here are a few key points he made (emphasis is mine):

These trading curbs implemented the uptick rule and downtick rule. They affected program trading and were, as they sound, curbs. These weren’t market fixes in times or turmoil but did theoretically keep the swings in check. In the days of “bringing on the free-for-all” these were done away with as being ineffective and unnecessary…

What it really did was enforcing program trading and “curbed” free fall trading days… Traders hated the curbs on the days when the markets wanted to rise and rise. But investors loved the curbs on days where the markets would have slid down and down in an unchecked manner…

It could remove the elation or death verdict of extreme markets. But it could also help prevent some of the crazy and zany trading we have seen of late. Some will hate the notion of this… But a nearly immediate reinstatement could be another mechanism for stability. There could actually be a downside to this. It might also prevent a 1,000 point rally from ever happening in a day.

I sure hope that bringing the curbs back is being discussed along with the more extreme measures that are currently under discussion. Bringing that rule back seems like it couldn’t hurt much and could possibly help a great deal.