Program trading encompasses a wide range of portfolio-trading strategies involving the purchase or sale of a basket of at least 15 stocks with a total value of $1 million or more. Program trading is calculated as the sum of the shares bought, sold and sold short in program trades. The total of these shares is divided by total reported volume.
This is not the only way to measure program trading. Three alternatives for April 3-April 7 would be to: examine buy programs as a percentage of total purchases (10.0 percent); examine sell programs as a percentage of total sales (8.8 percent); examine program purchases and sales as a percentage of total purchases and sales or twice total volume (9.4 percent).
For the second quarter of 2000, the NYSE's program-trading report includes profiles of program trading whenever the Dow Jones Industrial Average moves 200 points or more in a single direction during any one-hour period. During April 3-April 7, there was one such period. The profile is attached.
In all markets, program trading averaged 335.3 million shares a day during April 3-April 7. About 62.4 percent of program trading took place on the NYSE, 13.3 percent in non-U.S. markets and 24.3 percent in other domestic markets, including Nasdaq, the American Stock Exchange and regional markets. In aggregate, program volume executed on the NYSE by firms as agent, for non-member customers, amounted to 74.2 percent during April 3-April 7. Program volume executed as principal, for their own accounts, amounted to 22.6 percent of program volume.
Another 3.2 percent was designated as customer facilitation, in which a member firm established or liquidated a principal position to facilitate a program order initiated by a customer.
All five of the member firms reporting the most program activity on the NYSE executed all or most of their program trading activity for customers, as agent. Those firms are: BNP Securities, Deutsche Bank Securities, Bear Stearns, Morgan Stanley and RBC Dominion.
During April 3-April 7, 13.3 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 0.7 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 200 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 86.0 percent of member firms' program-trading volume during April 3-April 7.
