The new rules, approved by the NYSE's board of directors, would in effect permit bigger price swings before a "collar" restricts index arbitrage orders of stock included in the Standard & Poor's 500 index. The current collar, in place since July 1990, kicks in when the Dow Jones Industrial Average moves up or down 50 points from the previous close.

Under the new rule, restrictions would kick in only when the Dow moves up or down by 2 per cent. The exchange would calculate the collar quarterly in point terms based on the average closing value of the Dow for the last month of the prior quarter. If already in effect,the trigger for the fourth quarter of 1998 would stand at 150 Dow points.

The NYSE said its board also approved eliminating related "sidecar" provisions that restrict programme trading when the S&P Futures contract drops 12 points form the previous day's close.

Arthur Levitt, chairman of the Securities and Exchange Commission, told Reuters in a brief telephone conversation he welcomed a shift to a collar based on percentage moves. "I think that's a good way to go," he said. The new rules would only go into effect if approved by the SEC.

In Boca Raton, Fla., where brokers and investment bankers gathered for the Securities Industry Association's (SIA) annual meeting, the reaction was also enthusiastic. "I think changes should be made in a methodical way and I applaud the New York Stock Exchange for taking this step," said Irving Weiser, outgoing chairman of the SIA and chief executive of Minneapolis-based broker Dain Rauscher Inc.

"There may be a slight incremental volatility between 50 points and wherethe 2 per cent calibration would kick in," Bob McSweeney, senior vice president for market surveillance at the NYSE said in a telephone interview. "We'll be looking at that very closely and monitoring the effect of this rule change on the market volatility."

Some traders first questioned the 50-point rule a few years ago when bigger point swings became more common. Rising stock prices began to trigger the collar almost daily.

Earlier this year, the exchange modified its so-called circuit breakers, which allow trading halts after an extreme market decline. Under the change, percentage moves recalibrated quarterly are used to trigger the circuit breakers instead of a set number of points.

The collar functions in declining markets by limiting index arbitrage sell orders and in rising markets by limiting buy orders. Once implemented, the collar would stay in effect unless an advance or decline is reduced to one half of the 2 per cent trigger. The provision is similar to what occurs currently if a 50-pointmove narrows to a 25-point move. During 1990, "collars" were triggered 23 times during 22 days.