NYSE- Module 13

COMPETITIVE TRADERS

are individuals who have purchased the privilege to trade on the floor of The Exchange. These traders buy and sell stock for their own accounts, do not pay commissions since they are doing their own trades, and may move from one trading post to another as they wish.

Danger of placing sell limit order

same as placing a buy limit order If the current market price of the stock never reaches $40 per share or higher, the order will never be executed.

COMMISSION HOUSE BROKERS

also called FLOOR TRADERS, work for a broker/dealer that has a seat on The Exchange. Orders are transmitted from the numerous offices and trading desks of these broker/dealers to the site where they have a desk on the floor of The Exchange.

SELL LIMIT ORDERS Example Sell EGG at 40 This is an order to sell the EGG stock when it is trading at $40 per share or higher. (Note that a price is given, but no other words.)

-is an order to sell a security that is to be executed only when (and if) the specific limit price is reached. - are always entered above the present market price and they enable an investor to sell the security when it reaches a certain high point The order is executed when the market price of the security reaches that price or a higher price.

two basic types of orders are:

1.Orders that are to be executed at any price 2.Orders that are to be executed and/or activated at a predetermined price Market order Buy limit order Sell limit order Buy stop order (sometimes referred to as a stop-loss order) Sell stop order (also known as a stop-loss order) Buy stop-limit order Sell stop-limit order

MARKET ORDERS are:

1.To be executed as soon as possible at whatever the going market price is, no matter what the price 2.To be executed at the next round lot trade that occurs on the floor of the exchange 3.To be executed prior to limit and stop orders, even if the market price is at the limit or stop price 4.The most commonly used orders 5.Used to either buy or sell a security as soon as possible 6.Are always given preference over all other types of orders 7.A market order would be: "Buy me 300 shares of EGG." Note that there is no price given in this order.

TRANSLATING A TICKER TAPE Example X EGG X SLD IBM OPD RAR pr 42. 3s 36.50 .63 40s 41.88 40,000s 129. 23s 55

100 shares of U.S. Steel (symbol X) were traded at 42; followed by 300 shares of EGG at 36.50 and then 100 shares at 36.63; followed by 4,000 shares of U.S. Steel at 41.88 reported out of sequence; followed by 40,000 shares of IBM that just opened for the day and traded at 129; followed by 2,300 shares of Rod & Reel Co. (symbol RAR) preferred stock at 55.

A customer enters an order to buy 300 shares of EGG at 29.50. The last trade to take place before the order was entered was 29.95. Trades that occurred after the order was entered were at 29.75, 29.65, 29.55, 29.45, and 29.50. At which of the following trades was the order executed?

29.45. This is a buy limit order, which means it is executed at the limit price or below. The first price that occurred at the limit price or below was 29.45, so that is the price at which the order executes. There is no need to activate the order as in a stop order. The order is just executed immediately.

An investor enters a sell short ARP at 42.75 stop limit in the middle of the day. After her order is entered, the ticker tape shows trades as follows: ARP IBM ARP TDY ARP 42.80 103.25 42.70. 3s .60 4s 46 42.70. 2s .80 At what price will the order

42.80. The question is asking for when it is executed, not elected. This is a sell stop limit order, which means that the price must drop to $42.75 or lower to be elected (which it did) and then bounce back up to $42.75 or higher to be executed. After it goes down, the price must rise to $42.75 or higher for the order to be executed. In this case, the price gets up to $42.70 and then jumps to $42.80, where the order is executed.

A customer enters an order to sell short 300 shares of EGG at 48.75 stop limit. The last trade to take place before the order was entered was 48.80. Trades that occurred after the order was entered were 48.75, 48.65, 48.60, 48.70, and 48.80. The order was executed at:

48.80. This is a sell stop limit, which means it is first a sell stop. The price must therefore drop to 48.75 or below to be elected. "Elected" means to activate the order and, in this case, it then becomes a limit order. Since 48.75 is the first trade after the order was entered that is at or below the stop price of 48.75, this is the price at which the order is elected (activated). However, the question is asking for the execution price. Since the order becomes a limit order after it is elected, the price has to reach 48.75 or higher before the order can be executed, which it does on the fifth trade at 48.80 after the order was entered

A customer enters an order to buy 300 LPR at 56.75 stop limit. Prior to the entry of the order, the last trade is 56.50. Subsequent trades are reported on the tape as follows: LPR DAL LPR 56.65 3s 56.75 50s 62.50 4s 56.90 7s 56.80 4s 56.60 The trade is executed at:

56.60. This is a buy stop limit, which means it is first a buy stop. The price must therefore rise to 56.75 or higher to be elected. "Elected" means to activate the order and, in this case, it then becomes a limit order. Because the second trade after the order is entered at 56.75, which is at or above the stop price of 56.75, it is the price at which the order is elected (activated). However, the question is asking for the execution price. Because the order becomes a limit order after it is elected, the price has to drop to at least 56.75 or lower again before the order can be executed, which it does on the fifth LPR trade after the order is entered

A customer enters an order to buy 500 DFG stop limit at 77.25. Prior to entering the order, the last trade on DFG is 77.15. Subsequent trades are reported on the tape as follows: DFG UAL DFG 77.35 50s 62.50 4s 77.50 7s 77.40 7s 77.25 The trade above that elects the order is:

77.35. This is a buy stop limit, which means it is first a buy stop. The price must therefore rise to 77.25 or higher to be elected. "Elected" means to activate the order, and in this case, it then becomes a limit order. Because the first trade after the order is entered at 77.35, which is at or above the stop price of 77.25, it is the price at which the order is elected (activated). If the question had asked for the execution price, then the correct answer would have been 77.25. Since the order becomes a limit order after it is elected, the price has to drop to at least 77.25 again before the order can be executed, which it does on the fourth EGG trade after the order is entered

ROUND LOTS

A normal trade of stock is in multiples of 100 shares For Corporate Bonds=10 bonds(any less than 10 bonds must be offered first on the floor of the exchange, then can be traded over the counter after one hour = NINE BOND RULE (Rule 396).

The number of shares transacted appears in the following form:

A number followed by a single "s," followed by the price, represents that number in 100s and then the price. These groups of 100s are called ROUND LOTS. The two zeros in the "100" will be left off reporting trades up to 10,000 shares. Therefore, 9,000 shares would be shown as "90s," but 10,000 shares would be shown as "10,000s." Example A report of a trade of 700 shares (or 7 round lots) of EGG at 37.35 would be shown as follows: EGG 7s 37.35 if the number is followed by an "s" over another "s" followed by the price, then the quote represents round lots of 10 shares at that price. IBM 5s/s 126.35

Stopped Stock

A specialist may offer to STOP STOCK. To stop stock means that the specialist guarantees a certain price to a floor trader.

CONSOLIDATED TAPE

All trades that occur on the floor of exchanges and on Nasdaq are reported to this. These trades must be reported within 10 seconds of their occurrence.

An investor has a short position in a stock. It has dropped in value and he wants to protect his profit. What type of order should he enter?

Buy stop. A buy stop order (sometimes referred to as a stop loss order) is an order to buy a security once the security rises to or through a specified price called the stop price. A buy stop order is sometimes referred to as a stop loss order because investors will enter this type of order in an attempt to buy a security that they have previously sold short, hoping that the security goes down in price. The investor who sold short wants to purchase the security only if it starts to rise in price. This type of order is placed to stop the investor who sold short from losing money if the stock starts to rise. It is also used to lock in a gain on a short sale if the stock has dropped in value but is now reversing its trend and starting to rise in price.

All of the following GTC orders on the specialist's book will be reduced by the amount of the dividend when the stock sells ex-dividend, except:

Correct answer (false statement): Orders marked DNR. Orders with DNR (do not reduce) specifications will never be reduced for a cash dividend. If there is a stock dividend or a stock split, all orders will be reduced. BliSS is an acronym that will help you to remember which orders are reducing orders. BL stands for buy limit, and SS stands for sell stop and sell stop-limit. Orders that are entered below the present market price will be reduced by the value of a cash dividend. Those entered above the present market value will not be reduced. The orders that will be reduced are buy limit, sell stop, and sell stop limit orders

You have a customer who owns 2,000 shares of Pierco, Inc. stock. He tells you to sell all of it immediately or cancel the order. Which of the following types of orders is this?

Fill or kill order, or FOK. A "fill or kill" order must buy or sell all of the order immediately, or the order is killed. Do not confuse this with AON, an "all or none order." The difference is that an AON order has a time period in which to execute the order, which could be anywhere from an hour to a week, or even longer. The IOC order is an "immediate or cancel" order that if all of the order cannot be filled immediately, execute what can be done, and cancel the remainder. Don't get suckered into the IOC on this question, an easy thing to do. A DNR is an order put on the specialist regarding dividends, "do not reduce" the order on the ex-dividend date

A customer tells you he wants to buy 10,000 shares of NANSY at 18.50 or better. He wants you to enter the order immediately to see what can be purchased. He also tells you if you can't get all 10,000 shares purchased immediately, you are to take what you can get. What type of order is this

Immediate or cancel order. Since the order has to be executed immediately, it could be a fill-or-kill order; however, the question states "take what you can get." Therefore, it is an immediate or cancel order. If it all had to be executed, then it would be an "all or none" or "fill or kill" order, depending on how long it takes to fill. Immediate or cancel orders can be a completed order or a partial order -- whatever can be purchased. Market orders don't come with a price

A broker enters a day order for a customer. Later in the day, the customer changes the order to a good-till-canceled (GTC) order, leaving the price and the quantity the same. What happens to the order?

It loses its position. The order loses its time, or priority, position because the order has been changed. Remember -- any change in an order will cause the existing order to be cancelled, thus causing the customer to lose his or her priority to all other orders that have been accepted by the specialist. In fact, entering the new order after the close of the market would usually be the best course of action. To retain the level of priority for the remainder of that day, the customer should leave the existing order as is and then enter the new GTC order before the next day's opening

BLOCK ORDERS.

Large orders that could have an effect on the market OTC INTERMARKET MARKET MAKERS in the THIRD MARKET handle most of the large blocks of trades today

An investor, who has a long position in KOK, has a sell limit order at 34, Good for the Day. At 3 p.m., KOK is trading at 33. The investor calls his representative and wants to change the order to good-till-cancelled. Which of the following should the representative recommend?

Let the open order remain active and enter a new order before the next day's opening. In fact, entering the new order after the close of the market would be the best option if it were available. The reason for not cancelling the current order until after the close of the market is that it would cause the customer to lose his or her priority to all other orders that have been accepted by the specialist. To keep the investor's level of priority for the remainder of that day, keep the existing order and then enter the new order before the next day's opening. Remember -- any change in an order will cause the existing order to be cancelled, thus causing the customer to lose his or her priority to all other orders that have been accepted by the specialist.

Advantange of placing market orders

One advantage of submitting this type of order is that the order will be executed

"SLD" stands for "reported out of time sequence." Example EGG SLD 5s.25

SLD appears on the ticker tape when a transaction is reported out of the sequence of transactions on that stock Transactions may be reported out of time sequence because the order was misplaced or because the specialist executed an order without first going into the crowd. When a transaction is displayed on the ticker tape out of sequence, that transaction does not affect the determination of whether the stock is trading on a PLUS TICK or a MINUS TICK

An order is entered to sell a stock at $50, but not less than $48. What type of order is this?

Sell stop limit order. The order is to sell a stock at $50, but not less than $48. Because there are two prices, the order described is a stop limit order. Even if the prices specified by the customer were the same -- sell at $50 but not less than $50 -- it would still be a stop limit order. When two prices have to be met, the order is a stop limit order. A stop order only specifies one price, and after that price is reached, the stop order becomes a market order. A limit order also specifies only one price. A limit price indicates the price required by the customer for the transaction. There is no such thing as a switch order

Stopping Trading

Specialists may STOP THE TRADING of a stock when orders are so numerous that they cannot handle them all at that time; this is to ensure orderly trading on the market A specialist may also stop trading if a corporation releases a news story that will upset the market

THE AUTHORITY OF THE SPECIALIST

Stopping Trading Not Held Orders Stopped Stock

THE TICKER TAPE

The NYSE ticker tape is an electronic system that displays the last sale prices and volume of securities transactions made on the NYSE.

A trade that occurs on the ticker tape is reported by showing

The trading symbol of the stock The number of shares transacted The price of the transaction, which is usually the last digit or two digits

Example IBM 60 s/s 126.50

This represents 600 shares, just as 6s would represent 600 shares. You must know that the "s over s" means 10 unit shares and is considered a ROUND LOT, just as the regular lots of 100 shares and the multiples of 100 are considered round lots. (You will only see this on the test, never on a ticker tape.)

The primary roles of a specialist are

To "keep a fair and orderly" market To hold customer's buy limit, buy stop, sell limit, and sell stop orders.

NYSE requirements before it may be listed on The Exchange

The number of shares of common stock outstanding and the number of shareholders •Market value of the shares •The earnings by the company

Not Held Orders

The specialist may not accept NOT HELD ORDERS. A not held order means a broker/dealer will not hold the specialist to the prices of trades that occurred between the time when the order was entered and the time it was executed

Which two of the following orders will accelerate movement in the price of stock?

The buy stop and the sell stop. Buy stop orders accelerate a bull market. In a bull market, prices are rising and buy orders become in demand for more shares, which causes the price to rise further. In a similar way, sell stop orders accelerate a bear market. The market is already falling, and additional orders to sell will continue to pressure prices lower. When the market price falls to the price of the sell stop orders, the sell orders represent market orders that also increase the supply of stock available (known as "supply orders") causing the price to continue to fall. In both cases, the orders are accelerating the market. Just remember -- stop orders accelerate the market; limit orders turn the market around

CONSOLIDATION QUOTATION SERVICE and the TICKER TAPE.

The combined volume of trading on Consolidated Tape A and Consolidated Tape B is shown on both

Danger of placing buy limit order

The danger with a buy limit order is that it may never be executed. for example, if the stock never reaches the specified price, or if the investor is third or fourth in line and there are not enough stock transactions at the limit price for the investor's order to be executed

ODD LOTS

Trading quantities in less than 100 shares

To De-list from NYSE

a company must provide notice of the intention to de-list to at least 35 of its largest shareholders have a majority approval of the board of directors have the approval of the audit committee of the company

SPECIALISTS

are only found on the stock exchanges Specialists are people who act on behalf of one of the major broker/dealer firms or on behalf of a partnership work for a broker/dealer firm This way, they have enough money to own large amounts of the stock in which they specialize. Most specialists handle from 20 to 50 different stocks A specialist also must buy shares if the sell orders are so numerous that they outnumber the buy orders. This means that the specialist may be forced to hold a large position in one (or more) stocks. This also means that the specialist may be forced to sell if the buy orders are so numerous that they outnumber the sell orders. Under no circumstances are specialists required to sell more shares than they have, although they may sell stock short if necessary

TWO-DOLLAR BROKERS

buy and sell for their own accounts, but they also assist other broker/dealers in executing orders when the CHBs are too busy to handle all of the orders received.

DOWNTICK (also known as a MINUS TICK) Example If EGG traded at 37.75 (as in the above example), but the next trade was at 37.50, the stock is said to have "traded on a downtick."

describes a transaction of a stock made at a price lower than the preceding transaction of that stock.

UPTICK (also known as a PLUS TICK Example If EGG traded at 37.50 and the next trade was at 37.75, the stock is said to have "traded on an uptick."

is a term used to describe a transaction of a stock made at a price higher than the preceding transaction of that stock.

ZERO-UP TICK (also known as a ZERO-PLUS TICK) Example EGG trades once at 37.50, then trades again at 37.75, then trades a third time at 37.75. The third trade has been traded on a zero-plus tick.

is a transaction of a stock at the same price as the preceding trade of that stock, but both were higher than the most recent preceding price.

The New York Stock Exchange (NYSE)

is also known as the BIG Board and The Exchange. the member of NYSE is defined as any corporation or partnership.

The Exchange

is an auction market. This means that numerous buyers and sellers are competing in bidding for and offering to buy stock from each other at the best price available. All transactions executed on the floor of an exchange are final.

BUY STOP ORDERS (sometimes referred to as a stop-loss order)

is an order to buy a security once the security rises to or through a specified price called the STOP PRICE. A BUY STOP ORDER is always entered at a price above the present market, and usually above the resistance level.

BUY LIMIT ORDERS Example Buy EGG at 30 This is an order to purchase EGG stock only when that stock is trading at $30 per share or less

is an order to purchase a security that is to be executed only when (and if) the specific limit price is reached or lower BUY LIMIT ORDERS are always entered below the present market price. it is executed at the limit price or below

Danger of placing Market Orders

is that investors have no control over the price at which they are buying or selling the stock

"pr" stands for PREFERRED STOCK Example RAR pr 5s 54.50 This shows 500 shares of Rod and Reel preferred stock traded at 54.50.

is the denotation for distinguishing preferred stock from common stock. This is usually shown right after the company name on the ticker tape.

OPD stands for DELAYED OPENING Example EGG OPD 90,000s 37.35

occurs because of a large influx of buy or sell orders, which forces the specialist to delay the opening of the stock that day until the specialist can match the orders and wait A delayed opening also might occur because the specialist has noticed a large price discrepancy between the opening price of a stock and the closing price of that stock on the previous day

Registered Principal

of a firm must give prior approval in writing for any correspondence sent to a customer by a registered representative.