WASHINGTON – The Securities and Exchange Commission used its emergency powers for the first time Friday to ease restrictions on companies buying back their own shares, to smooth trading for the anticipated reopening of the stock markets Monday after an extraordinary four-day shutdown.
"These markets are the world's strongest and most vibrant, in spite of the heinous acts of last Tuesday," the SEC said in a brief announcement. "Investors should be assured that U.S. markets will function effectively and fairly, and that market and investor protections are squarely in place."
The agency said it was the first time it had invoked its emergency powers for such an action.
Under the new rules, the SEC said, corporations may buy back their own shares without meeting customary restrictions regarding the volume of shares and timing of purchases. The move will allow more money to be pumped into the market. In addition, mutual funds may borrow from and lend to related parties, and accounting firms may provide bookkeeping services to help brokerage firms that lost records in the World Trade Center area without violating rules requiring accountants to be independent of firms they audit.
SEC officials know that restoring confidence in the U.S. financial system means reopening the symbolic trading floors at the New York Stock Exchange, a mere five blocks from the devastated World Trade Center site in lower Manhattan's financial district.
At the same time, the regulators and Wall Street officials must strike a balance between the goal of a normally functioning market and the need to respond to a panicky sell-off by investors.
Reopening the market after the longest closure since the 1929 crash will be a struggle: Workers have been racing to replace the communications and power systems lost in Tuesday's terrorist attack, but some experts aren't convinced there will be enough time to repair the damage.
The plan to resume trading Monday on the NYSE, the all-electronic Nasdaq Stock Market and the regional U.S. exchanges depends on a test of market systems on Saturday. However, NYSE chairman Richard A. Grasso said Friday during a conference call with reporters that he was confident the exchange will be ready.
The SEC has set up a telephone hot line to help answer individual investors' questions and address trading-related complaints: 1-800-732-0330.
Current SEC rules restrict corporations from buying or selling more than a specific daily volume of their own shares and from trading at the market's opening or closing.
Rep. Michael Oxley, R-Ohio, chairman of the House Financial Services Committee, called the buybacks "critical" to market stability.
One major technology company -- Internet networking giant Cisco Systems Inc. -- said late Thursday that it plans to repurchase up to $3 billion of stock over the next two years.
The agency also is leaving in place the current market system of so-called circuit breakers, which automatically halt stock trading when prices drop precipitously, exchange and industry sources said Friday, speaking on condition of anonymity. They were established in response to the October 1987 market break to temper wild price swings and designed to be used only during a severe one-day market decline "of historic proportions."
At the height of the market boom in April 1998, the SEC required the circuit breakers to take effect beginning with a 10 percent drop.
The new rules raised the threshold for trading curbs to drops of 10 percent, 20 percent and 30 percent in the Dow Jones industrial average. Before that, curbs halted trading when the Dow industrials fell 350 points, which was equal in April 1998 to about 4 percent, and 550 points, or about 6 percent.
A 10 percent drop in the Dow would be equal to about 960 points.