The New York Stock Exchange (ICE) is scrambling to appease officials at several listed companies who say market makers there botched trading of their shares during the wild market turbulence that led to a 1,089 intra-day point nose dive in the Dow Jones Industrial Average in a matter of minutes two weeks ago, the FOX Business Network has learned.
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At issue for executives at companies that list shares on the exchange: The NYSE’s imposition of the rarely used Rule 48, during the wild selloff on Monday Aug 24. This allowed market makers on the floor of the exchange to circumvent normal trading rules in the hope of assuring a smooth market open. The problem, these people say, is that the rule can be unintentionally misused and possibly abused by market makers, allowing them to buy shares at abnormally low prices and then sell them later when the market improves.
Now, the big board is fielding complaints from various listed companies and some investors who believe that specialists in certain stocks didn’t price some shares correctly. Officials at the private equity firm KKR & Co.(KKR), which is a NYSE listed company, have been meeting with NYSE officials about the matter and are considering whether they should dump the company’s so-called designated market maker, IMC Financial Markets, after studying the price data on August 24.
Designated market makers perform a similar duty as the specialists once did on the floor of the NYSE by maintaining an “orderly” market in stocks particularly during times of wild market zig zags. But officials at KKR say the trading on August 24 was anything but orderly. KKR opened at 9:30 am EDT that morning trading nearly $10 lower from the closing price during the prior session, before settling in a more normal trading range and finishing the day about $1 lower even as the Dow Jones recovered somewhat with a loss of 588 points.
A KKR spokeswoman declined to comment on the matter, but would not deny that the company is considering hiring a new designated market maker. A spokesman for the Chicago-based IMC declined comment, and also wouldn’t deny that KKR is considered a change.
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In a statement, the NYSE said: “Every day, we open approximately 2300 stocks on behalf of our listed companies and we focus on price discovery over speed, and on the day in question, overall NYSE listed stocks exhibited significantly less volatility than those that traded on other markets.”
Still, the controversy over the use of Rule 48 and how some specialists executed the rule won’t end anytime soon. People at rival exchanges say the Securities and Exchange Commission is examining the August 24 selloff and whether or not there is evidence that some market markets violated regulatory rules in their pricing of some stocks.
Meanwhile, officials from the Nasdaq OMX Group (NDAQ) are reaching out to various companies that had some of the wildest pricing swings to see if they might switch their listings away from the NYSE. The two remain fierce competitors in the lucrative listings business.
A Nasdaq spokesman had no comment.
*KKR's stock price on August 24 was updated.