The New York Stock Exchange LLC has filed a rule proposal with the Securities and Exchange Commission to (i) modify the definition of program trading, (ii) issue guidance on the definition of program trading and (iii) replace the Daily Program Trade Report with a simplified audit trail requirement.
As presently defined, program trading is either index arbitrage or the purchase or sale of a basket of 15 or more stocks with a total market value of not less than $1 million. The amendment will eliminate the $1 million floor, but will retain index arbitrage.
The proposed rule also states that program trading includes the purchase of stocks as part of a coordinated trading strategy. In its SEC filing, the NYSE noted customer driven parameter based trading, e.g., trading in which the customer specifies certain desired execution conditions such as timing, pricing, quantity or marketplace as in algorithmically driven trades that are generated by operation of a computer program based on market information, would no longer be program trading in most instances. Other trading strategies, such as volume-weighted-average-price (VWAP), statistical arbitrage and other computer driven trading strategies would generally not be deemed to be program trading.
To accomplish this, the NYSE proposes issuing guidance to member firms. The guidance will focus on the primary investment objective of trading, as well as the linkage or dependency between or among simultaneous or near simultaneous trades in different securities relative to the investment objective. An execution of 15 or more stocks that is entered as part of a single investment strategy, including liquidation, rebalancing or realignment of a basket/portfolio, with the intent to execute all or most of the stocks would be a coordinated strategy, and a program trade.
The NYSE proposes to eliminate the requirement that member firms electronically file a report of program trades by the close of the second business day after the trade. Instead, NYSE would redefine two of the existing program trading related audit trail account types so member firms mark the specific program trading strategy at the time of order entry and execution.