Wall Street will try today to cure the wild price gyrations that often rattle the stock market on so-called triple witching days.
Triple witching days mark the simultaneous expiration of options on stocks, options on stock indexes and futures on stock indexes. In the past, all three have expired in the final moments of the trading day on four Fridays a year -- in March, June, September and December.
In a few frenetic minutes, the New York Stock Exchange has handled as many as 86 million shares in a crush of trading that has moved the Dow Jones industrial average as much as 35 points in minutes.
Trying to cope with the deluge, the NYSE and the Chicago Mercantile Exchange (CME) agreed to move up the expiration of some of the most popular stock index investments -- including the CME's futures contract on the Standard and Poor's 500 stock index.
The contracts expired last night, but the crucial closing price will be determined by the opening prices of shares this morning in New York.
S&P 500 futures allow investors to bet on the overall direction of the stock market with a small down payment. They are widely used by professionals in "program trading" that uses computers to coordinate deals in stocks and futures.
A variety of other options and futures contracts will still expire at the end of today, leading some observers to conclude that the volatility formerly centered on the close will be spread throughout the day.
Market watchers were divided on whether the new procedures will reduce trading volatility or make it worse. Institutional investors were said to be sitting on the sidelines, trying to stay out of harm's way.
As Wall Street girded for the day, the Dow average closed yesterday with a gain of less than a point.
Edward T. Dunne, head of capital markets at Moseley Securities Inc., said he expected today's morning expiration to lead to "very large selling on the opening" and the afternoon expirations to produce "large buying on the close."
NYSE computers will open at 7:30 a.m. today to accept orders for 31,000 shares or less. All orders related to expiring contracts on stock indexes must be entered by 9 a.m., and order imbalances of 50,000 shares or more will be advertised on the exchange tape after the opening.
"Morning settlement will expose order imbalances to the full sunlight of public disclosure, ensure the broadest dissemination of market information and facilitate the participation of all interested investors," said NYSE president Robert J. Birnbaum.
William J. Brodsky, president of the Chicago Mercantile Exchange, called the change "a major step forward." He said the CME "took a big risk to make the changes" but felt it was necessary to help the NYSE solve the problems created by the deluge of orders and the imbalances.
The morning expiration, said analyst Eugene Peroni Jr. of Janney Montgomery Scott Inc., "will have a calming influence on the market."
Gary P. Lahey, executive committee chairman at the Chicago Board Options Exchange, said that based on yesterday's virtually flat market performance, buy and sell orders related to program trading would be evenly matched at the NYSE opening.