NYSE: Rumors are Now "Material Corporate News"

At 11:53 am Monday, the drama around the sharp drop in shares of National City Corporation became more pronounced. The New York Stock Exchange halted trading in NCC, citing "news pending." Shares were down 27 percent.

Then, at 11:59 am, investors learned the news. Cue the Law & Order theme "dun, DUN."

Here's the company's statement in its entirety:

"National City is experiencing no unusual depositor or creditor activity. As of the close of Friday's business, the bank maintained more than $12 billion of excess short-term liquidity. Further, as a result of our recent $7 billion capital raise, National City maintains one of the highest Tier I regulatory capital ratios among large banks."

That sound you hear is the air deflating from the bubble of suspense around NCC shares. The pending news, it seems, was that everything is hunky-dory. Don't believe what you hear.

Now, we know the subject of market rumors is the topic du jour among pundits, bank C.E.O.s, journalists, bloggers, and securities regulators.

But how exactly does a company halt trading of its shares in order to quash some nebulous market chatter?

It turns out the New York Stock Exchange determined that the "We're okay" statement was in fact a "material corporate news" event. Here's the language of the rules from the exchange's web site:

Companies are required to contact the Exchange ten minutes prior to announcing material news that could have an impact on trading in their securities during market hours of 9:30 a.m. to 4:00 p.m. Eastern Time. The Exchange makes a determination, in consultation with the company, whether or not to delay or halt trading in that company's shares until the news has been disseminated.

"In this case, we did decide it was material news and we did so because of the kind of environment we're in," said N.Y.S.E. spokesman Scott Peterson.

Is this going to be the new norm for rumor targets in this skittish market? Peterson wouldn't dare to speculate.

Meantime, it appears that the NCC halt only worked slightly. Shares came back from their morning lows after trading began again at 12:10. They ended the day down nearly 15 percent.

by Megan Barnett