Circuit Breakers,Trading Collars,and Volatility Transmission Across Markets: Evidence from NYSE Rule 80A

The NYSE's Rule 80A attempted to delink the futures and equity markets by limiting index arbitrage trades in the same direction as the last trade to reduce stock market volatility. Rule 80A leads to a small but statistically significant decline in intraday U.S. equity market volatility. In addition, the results are asymmetric: volatility is dampened more in a rising market than in a declining one. These results suggest that, to a limited extent, rule restrictions on trading can sufficiently delink the futures and equity markets enough to reduce the transmission of volatility.