Lawmaker urges SEC to halt market volatility

WASHINGTON (Reuters) - A senior U.S. lawmaker urged the U.S. Securities and Exchange Commission on Tuesday to reinstate an index arbitrage rule to halt market volatility.

"The SEC has the authority and responsibility to ensure that this volatility is not exacerbated dangerously by internal market mechanisms such as program trading which could push this situation into a free fall," said Democratic Rep. Edward Markey, who was chairman of the House subcommittee on telecommunications and finance during the market turmoil of the late 1980s.

In a letter addressed to SEC Chairman Christopher Cox, Markey urged the SEC to order the New York Stock Exchange to reinstate rule 80A, which was designed to help calm market volatility.

On Monday, major U.S. stock markets plunged, with the Dow Jones industrial average .DJI dropping 778 points after U.S. lawmakers unexpectedly rejected a $700 billion financial bailout.

On Tuesday, markets recovered somewhat with the Dow rising 240 points by early afternoon.

Markey said that, after the 1987 and 1989 market crashes, Congress took steps to ensure regulators would be able to deal with market volatility.

"Now is the time for those regulators to step up to the plate," said Markey, of Massachusetts.

(Reporting by Rachelle Younglai; Editing by Andre Grenon)