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After Bilo posted comments about Goldman Sachs and the recent Fed action, I
thought it would be interesting to learn more about NYSE program trading -
knew that it existed with many major firms but never new the existing rules,
etc.
Glancing at the Program Trading Column in the Wall Street Journal for Friday
April 27th, it has info for the preceding week ending April 20th.
"Program trading in the week ended April 20th accounted for 30.6%, or an
average of 367 million daily shares, of New York Stock Exchange volume."
"...Index arbitrage can be executed only in a stabilizing manner when the
Dow Jones Industrial Average moves 200 points or more from its previous
day's close."
The column goes on to list the major firms and a break down of Program
Trading into three categories: Index Arbitrage, Derivative related and Other
Strategies. "Other Strategies" carries about seven times more volume than
the other two. Anyone have a general idea of what these firms run in terms
of programs that fits into this category?
Here is a more detailed outline of Trading Curbs:
Program Trading "Collars"
A collar on program trading firms instituted by the NYSE is most commonly
referred to on CNBC as "Curbs In". The Exchange applies program trading
curbs whenever the Dow Jones Industrial Average moves 200 points higher, or
200 points lower than the previous day's closing price. The NYSE restriction
on program trades stays in place until the Dow Jones returns to within 100
points of the previous day's closing price; or, until the end of the trading
day at 3:00 CT. The restrictions will be re-imposed each time the Dow Jones
advances or declines 200 points.
The NYSE defines a Program Trade as:
1. A basket of 15 or more stocks from the Standard & Poor’s 500 Index.
2. A basket of stocks from the Standard & Poor's 500 Index valued at $1
million or more.
Once the NYSE program trading collar is in place, Program Selling can be
executed only on an up-tick. That means that the last trade was executed at
a higher price than the trade before it.
Program Buying can be executed only on a down-tick. That means that the last
trade was executed at a lower price than the trade before it.
So if there are NO Trading Curbs in effect, they are not obligated to these
up-tick/down-tick rules? If I want to short a stock, I can only do so on an
up-tick regardless...
I remember too, maybe a posting to this list, that they also have direct
order routing/access to the DOT computer.
Anyone else care to share more details of how the sharks move through the
waters on Wall Street?
(It also brings to mind to what I think Jeff Cooper said: "Stocks don't
move, they ARE moved.")
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