NYSE to remove trading curb born out of '87 crash

NEW YORK, Oct 26 (Reuters) - The New York Stock Exchange said on Friday it has proposed removing a rule limiting program trading on the grounds that the rule, put into place after the 1987 stock market crash, is no longer effective in curbing market volatility.

The proposed rule change will remove current buying and selling curbs -- called "trading collars" -- on brokerages using computer-assisted program trading when the NYSE Composite Index moves up or down more than 2 percent, the exchange said in a note to member firms.

The exchange defines computer-assisted program trades as the buying or selling of a basket of at least 15 stocks from the S&P 500 Index valued at $1 million or more.

"Volatility is neither restrained nor enhanced by the imposition of the collars," the exchange said in a filing with the U.S. Securities and Exchange Commission.

"The exchange is making this change since it does not appear that the approach to market volatility envisioned by the use of these collars is as meaningful today as when the rule was formalized in the late 1980s," the filing said.

The current rule, Rule 80A, addresses only one type of trading strategy, known as index arbitrage, but trading strategies have multiplied in the past several years, according to the filing.

These collars, which were used 366 times in 1998, have been invoked only 15 times so far this year.

The collars only applied to some index arbitrage trading in S&P 500 Index component stocks, the exchange said in the filing.

Index arbitrage is an increasingly smaller part of daily stock trading at the exchange, the NYSE, owned by NYSE Euronext (NYX.N: Quote, Profile, Research, Stock Buzz), said in the filing. (Reporting by Anupreeta Das)