Program Trade


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Program Trade

A large trade executed automatically by a computer on behalf of institutional investors. Program trades are usually open orders in which the computer is programmed to wait until a certain price prevails before buying or selling a large quantity of securities. Because of the large number involved, program trading may lead to increased market volatility; because of this, program trading has been blamed for the 1987 Stock Market Crash, selling automatically as prices were reached, making the problem worse. Exchanges now limit the times when program trades may occur to prevent a recurrence. Program trading is also called basket trading. See also: Algorithmic trading.
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2) Most but not all program trades at the NYSE are routed through SuperDOT, a computerized routing system.
A program trade thus offers two main advantages to a fund manager: it transfers the risk--be this market, transaction, settlement, or foreign exchange-related--from the client to the broker, and it provides the client with immediate execution at a guaranteed price and with reduced transaction costs.
A source at the London stockbroking firm of James Capel told us that he believed there was currently about one program trade (i.
Slivka of Salomon Brothers has raised another issue, that of using a program trade to control the actual costs of making a transaction involving a portfolio of shares.
Program trades are usually undertaken blind; that is, the broker does not know the exact composition of the portfolio and must use his judgement in deciding whether or not a particular portfolio should be acquired.
This is partly because firms involved in program trading do not readily publicize the fact, and also because such figures as do exist relate not only to true program trades but also to index arbitrage and portfolio insurance.
According to the NYSE, between January and September, 1987, an average of 15,000 program trading orders passed through the Exchange per day, and on October 19, 1987, a total of 61,000 program trades passed through the NYSE on that single day.

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