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There was an interesting article re: Program Trading in I believe "Active
Trader" magazine within the last few months.
What I recall is as follows:
1) The formulas used are not complex, but do monitor a very complex and
dynamic list of stocks and futures.
2) The profits generated come from playing very (!!!) large amounts of money
for tiny fractional returns.
3) The timing of these programs is so short that it is nearly impossible to
identify them in time to gain any more than a "fraction of the fraction".
In my own daytrading, I created a special HotList with fast ROC indicators
that could show you when an entire "sector" was being seized by a buy/sell
program. But I can confirm that by the time you see the program "in action"
it's usually too late to act. More reliable was when such a program created
a "cascade" effect from a pent-up consolidation of an hour or more. The
"descretionary" part was guaging whether such consolidation was long enough,
TOD, second opening, etc.
It was quite an active discussion for a while though.
Cheers,
Gene
----- Original Message -----
From: "DP" <ahava1@xxxxxxxxxx>
To: <Omega-List@xxxxxxxxxx>
Sent: Sunday, April 29, 2001 11:19 AM
Subject: Program Trading
> 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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