Starting in 2016, traders on the New York Stock Exchange will no longer be able to file new Stop and Good Till Canceled (GTC) orders.
In a Monday notification, the NYSE said that it would no longer accept new Stop or GTC orders beginning on Feb. 26, 2016. All existing GTC and Stop orders on the NYSE book would be cancelled at that time.
According to a spokeswoman for the NYSE, the exchange was concerned about retail investors misusing the orders.
“Many retail investors use stop orders as a potential method of protection, but don’t fully understand the risk profile associated with the order type,” the spokeswoman said via e-mail. “We expect our elimination of stop orders will help raise awareness around the potential risks during volatile trading.”
Michael Kitces, director of research for Columbia, Md.-based Pinnacle Advisory Group, suggested that the rule change may be related to the ETF “flash crash” in August, when the price of many ETFs declined well below the value of their constituent securities, or their “net asset value.”
“For those advisors and investors who trade infrequently anyway, this kind of intra-day volatility may be a 'non-issue' that was literally not even noticed by those who owned the ETF securities,” Kitces said in a September blog. “Except those who panicked and sold at the market’s open based on overnight news. Or, unfortunately, those who were using Good Til Canceled (GTC) stop loss market orders.”
With GTC orders, investors specify a price at which they will buy or sell a security. The order remains open until an investor cancels it or a trade is executed. Many brokerages put a limit on GTC orders of between 30 and 90 days. In the absence of GTC, orders expire at the end of a trading day if they haven't been executed. Stop orders buy or sell securities when their price passes a set point.
Brokerages may still offer these kinds of orders to their consumers, the NYSE spokeswoman said, but the orders will no longer be available directly from the exchange.
