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Hi all,
It was a real surprise for me to learn statistictics regarding
trading programs as shown by NYSE (see
http://www.nyse.com/public/market/2c/2cix.htm) . For
instance, in their report for the week of August 24-August 28,
they wrote:
"...The data indicated that during August 24 - 28, program trading
amounted to 18.5 percent of NYSE average daily volume of 740.0
million shares, or 136.8 million shares a day...
...During August 24 - 28, 17.0 percent of program volume executed
by NYSE member firms related to index arbitrage. Index arbitrage is
defined as the purchase or sale of a basket of stocks in conjunction
with the sale or purchase of a derivative product such as stock-index
futures, to profit from the price difference between the basket and the
derivative product.
Another 1.1 percent involved derivative product-related strategies
(besides index arbitrage) that are subject to Rule 80A. The rule
provides that derivative-related program strategies be executed
only in a stabilizing manner after the DJIA moves 50 points or
more from the previous day’s close.
In addition to index arbitrage, such strategies include customer
facilitations, liquidation of facilitations, index substitutions,
liquidation of error accounts, risk modifications, and liquidation
of exchange-for-physicals stock positions.
All other types of portfolio-trading strategies combined accounted
for 81.9 percent of member firms’ program-trading volume during
August 24 - 28...."
So, an "active" play on stock-index futures vs. stock basket, i.e. index
arbitrage seems occupying a modest portion of total daily program
trading activity. Are all other program trading happenings just a sort
of "house cleaning" routines, not related in a DIRECT way to what
is going on NOWon the markets? If so, should we pay too much
attention to these market moves analysing a day? Or better, is
there any sense to dig deep finding out if there was any good,
meaningful for me stock trader, cause for the move, even though
it may indeed have changed the index quite a bit? What'd you think?
Thanks.
Cheers, Vitaly
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