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VI- C O N C L U S I O N S
N
AND
RECOMMENDATIONS
T h e opinions of Cresap, M c C o r m i c k and Paget regarding the Special Study's section on floor trading w e r e expressed in the preceding chapter. This chapter is confined to the conclusions and r e c o m m e n d a tions resulting f r o m Cresap, M c C o r m i c k and Paget's o w n study. Following an introductory statement outlining the approach taken by Cresap, M c C o r m i c k and Paget are sections on r e c o m m e n d e d rules, general surveillance procedures, and general r e c o m m e n d a t i o n s . INTR ODU CT ORY STATEMENT
D r a w i n g conclusions f r o m this study and formulating r e c o m m e n d a t i o n s represent a grave responsibility, because, at this stage of the controversy between the S E C and the Exchange, irreParable h a r m could c o m e to the auction m a r k e t f r o m failure to devise an effective m e a n s of employing, to beneficial ends, the speculative risk-taking talent and capital on the Floor and within the m e m b e r f i r m group. T h e s e r e c o m m e n d a t i o n s propose to convert into a positive and constructive function the activities of m e m b e r s and m e m b e r firms w h o n o w engage in speculative risk-taking and to retain the mobility of their capital. T o differentiate t h e m f r o m other m e m b e r s and their functions, they m i g h t be designated as "registered dealers" (or s o m e other appropriate term). F r o m a practical aspect, successful implementation of the plan will result in loss of s o m e of the prerogatives heretofore enjoyed by s o m e m e m b e r s and m e m b e i ~ firms. O n the other hand, m a k i n g constructive use of the group engaging in speculative risk-taking, under suitable standards of p e r f o r m a n c e , should materially assist in maintaining continuity and stability of prices, and thereby provide support to the specialists w h e n their particular stocks are subject to a m a j o r imbalance of supply and d e m a n d . Investors in general, as well as the Exchange, its m e m b e r s and m e m b e r firms, should benefit substantially over the long term.
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R e c o m m endation
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- Minimum "registered dealer" trading capital as established by the E x c h a n g e to ensure adequate p e r f o r m a n c e of the function.
Explanation
A strong correlation exists between the capital resources II of traders and their likelihood to perform a constructive dealer function. ~-:-
b. A n y m e m b e r organization and any individual m e m b e r should be eligible to establish a "registered dealer" account, provided the above qualifications are met, including the capital requirements over and above those required for the m e m b e r ' s or m e m b e r organization's other activities.
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No organization which carries customer accounts should be p e r m i t t e d to e s t a b l i s h a "registered dealer" account, unless the Exchange has previously investigated and approved the regular order handling and order superv i s i o n p r o c e d u r e s of the o r g a n i z a t i o n in q u e s t i o n a s providing adequate protection for public orders and for fair and orderly markets.
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Potential conflicts of interest between the "registered d e a l e r " a c t i v i t y a n d t h e s e r v i c i n g of p u b l i c o r d e r s s h o u l d be e l i m i n a t e d i n s o f a r a s i s p r a c t i c a l . On the o t h e r h a n d , t h e l e g i t i m a t e t r a d i n g a c t i v i t i e s of m e m b e r s and member firms representing the public should not be curtailed, and the largest possible amount of constructive risk-taking capital should be channeled into the "registered dealer" activity. Commission firms that now trade r e g u l a r l y f o r t h e f i r m a c c o u n t a r e c a r e f u l to p u t t h e i r customers' i n t e r e s t a h e a d of t h e i r o w n , a n d t h e i r t r a d i n g activities are the collective responsibility of the princip a l s of t h e f i r m s .
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Recommendation c. "Registered dealer" accounts should be required to m e e t m i n i m u m perf o r m a n c e standards for the securities in which they deal.
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A standard of p e r f o r m a n c e in stabilizing transactions, i. e. , a percentage of v o l u m e against the trend as m e a s u r e d by the straight tick test, which would be established by the E x c h a n g e to ensure adequate accomplishm e n t of the "registered dealer" function. This standard should be m e t or exceeded by the "registered dealer" account on a biweekly basis and should apply to all transactions effected for each "registered dealer" account. Also, with the objectives of improving the function, the standard might be changed in the future, as experience is gained in the conduct of "registered dealer" operations.
Explanation Statistical studies disclose that present floor trading tick test scores fall mainly within the range of 40 per cent to 60 per cent. F u r t h e r m o r e , the m o s t active and m o s t highly regarded floor trading accounts are those that generally achieve the highest scores. O n c e the "registered dealer" category is established, only those w h o demonstrate an ability to act in a constructive m a n n e r should be permitted to retain their registration. A n initial m i n i m u m standard of 60 per cent stabilization, as m e a s u r e d by the straight tick test, appears to be feasible and realistic.
If the p e r f o r m a n c e of a "registered dealer" in any one security falls substantially below standard, an investigation should be undertaken by the Exchange.
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Explanation
Re commendation Additional and i m p r o v e d standards should be devised to evaluate "registered dealer" performance, including participation in difficult m a r k e t situations, delayed openings and block transactions.
M a n y floor traders presently participate constructively in m a n y difficult m a r k e t situations. Their p e r f o r m a n c e appears c o m p a r a b l e to that of the best of the specialists on such occasions. " R e g i s t e r e d dealers" should be expected to m e e t those standards not subject to direct quantitative m e a s u r e m e n t s but nevertheless recognized a m o n g floor professionals as essential to a constructive dealer function.
d. Failure to maintain p e r f o r m a n c e should subject "registered dealers" to appropriate disciplinary m e a s u r e s , including suspension of registration as warranted.
capital account tration, reveals
e. Failure to maintain m i n i m u m required for the "registered dealer" should result in suspension of regisunless investigation by the E x c h a n g e mitigating circumstances.
Z. T h e following rule governing "registered dealer" accounts,- is r e c o m m e n d e d : a. All purchases effected for "registered dealer" accounts, w h e t h e r on the bid or on the offer, should be limited to prices b e l o w the previous day's high, except: - O n m i n u s or z e r o - m i n u s
ticks
- T o close out or reduce short positions - F o r bona fide arbitrage -
O n e of the effects of requiring a stabilization p e r f o r m ance will be an over-all upgrading of "registered dealer" performance. In addition, if their capital is to be utilized in the m o s t constructive way, they should be given greater latitude in the conduct of their trading. Establishing the previous day's high as the point a b o v e w h i c h p u r c h a s e s are limited to m i n u s and z e r o - m i n u s ticks recognizes the need for this greater latitude and yet is designed to prevent "registered dealer" activity f r o m exerting u n d u e u p w a r d p r e s s u r e on the price of a stock or stocks. P u r c h a s e s to cover short positions should r e m a i n unrestricted because, in effect, they are a liquidation of a short position and should be g o v e r n e d by the s a m e principle as sales f r o m a long position.
T o correct a transaction m a d e in error. VI-7
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Recommendation :DS
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There are occasions when, due to Unusual activity in a given stock, the Exchange may find it expedient to exercise its discretion on trading price limits in the interest of maintaining an orderly market.
(3~i T o ensure that public orders will receive the-full preferential treatment to w h i c h they are entitled, the following rules are r e c o m m e n d e d :
An NYSE member w h o operates on the Floor of the E x c h a n g e has certain a d v a n t a g e s over off-floor m e m bers and the investing public, in executing o r d e r s for his o w n or f i r m account. P r e s e n t N Y S E Rule I08 lessens the advantage of the Floor, and this r e c o m m e n d a t i o n is patterned on that Rule but e x p a n d s its scope with the objective of further equalizing m e m b e r trading conditions in the interest of m a k i n g "registered dealer" activities a fully constructive force.
- Specialists and odd-lot dealers, when dealing in stocks in which they are registered, shouId be exempted from the provision of this rule.
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b. If, in the opinion of the E x c h a n g e , price behavior of a stock has m a d e the previous day's high unrealistic as a limit, then the limit should be r e d u c e d to the previous day's close.
a. N o bid or offer, or r e s p o n s e t o a bid or offer, originated on the Floor b y a m e m ber (or on an order originated off the Floor~.~y such member on a day during which that memb he ar s . ~ b e e n o n t h e F l o o r ) f o r a n a c c o u n t i n which such member has an interest, shall be e ~ o n t i m e porrl c e ~ w i ~ , or precedence based on size over,=~.a public order.
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b. A public order shall enjoy the s a m e preferential treatment, as in (3a) above, in the specialist's book. c. E v e r y order subject to (3a) a b o v e shall be clearly designated as a " m e m b e r o r d e r " w h e n sent to the Floor,, w h e n left with a specialist or w h e n given to another broker.
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Explanation
Recommendation
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4. No member (other than a specialist or an odd-lot dealer, in the stocks in w h i c h they are registered, or a "registered dealer") m a y initiate or effect a transaction, while on the Floor, for an account in w h i c h the m e m b e r has an interest except: -
T o correct a transaction m a d e
T h e previous r e c o m m e n d a t i o n s include rules to g o v e r n the activities of the "registered dealer. " T h o s e in this section are r e c o m m e n d e d to limit the activity of n o n r e g i s t e r e d m e m b e r s when m a k i n g transactions for their o w n account.
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- I n the event a floor official has e x p r e s s l y invited buying or selling to assist in a difficult m a r k e t situation such as a delayed opening, a reopening or the execution of a large order.
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5. N Y S E Rules 108, 109 and ii0 (together with the clarification, interpretation and instructions to these rules) should be revised to c o n f o r m with the concept and intent of the foregoing r e c o m mendations.
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R EC OMME NDAT ON TRADING • SURVEILLANCE
IONS
T o i m p l e m e n t the proposed p r o g r a m for "registerered dealer" operations requires i m p r o v e d selfregulation and surveillance of floor operations, and therefore the following r e c o m m e n d a t i o n s are m a d e :
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I. T h e requirements for m e m b e r reporting of transactions for their o w n or organization account should be specified in detail and brought to the attention of all m e m b e r s and m e m b e r organizations. A d h e r e n c e to reporting requirements and a review of accounting p r o c e d u r e s for reporting should be a regular part of N Y S E ' s periodic audits of m e m b e r accounts. 2. T h e Exchange s h o u l d establish the qualitative and quantitative standards of p e r f o r m a n c e required of the "registered dealer. " 3. T h e Exchange, in connection with its current review of organizational structure, should consider what steps are necessary for i m p r o v e m e n t of the procedures for making, adoption and i m p l e m e n tation of rules relating to floor transactions and the operations of "registered dealers," and the surveillance of such operations. GENERAL RE C O M M E N D A T I O N S
i. T h e E x c h a n g e should initiate a p r o g r a m of internal education to ensure that all m e m b e r s understand the changes which are adopted by the N Y S E , together with the reasons for the changes. This p r o g r a m should be directed to m e m b e r s , allied m e m b e r s and registered representatives of m e m b e r fi r m s .
2. T h e E x c h a n g e should initiate a research p r o g r a m a i m e d at quantifying the concept of price "stability" and at developing additional trading rules in the interests of fair and orderly markets. 3. T h e E x c h a n g e should e x a m i n e and r e c o m m e n d to the Federal R e s e r v e S y s t e m m a r g i n requirem e n t s appropriate for the "registered dealer" function.
VI- 10
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QUESTIONNAIRE
RESPONSES
BY
PRINCIPAL
ACTIVITY
a. b. c. d. e. f.
.
Member not n o r m a l l y on Floor Specialist Commission broker Floor trader T w o dollar b r o k e r Other (bond, odd-lot, etc.) Total
W h a t is the total n u m b e r of voting stock ( m e m b e r s yourself, in your f i r m ?
18Z 263 251 38 77 84 895
of active partners or holders and allied m e m b e r s ) including
O.F. a. b. c. d. e.
Individual m e m b e r 2-4 5-9 10 or m o r e Unclassified size
26 35 51 53 17 Key
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T o Abbreviations
- Off Floor; M e m b e r Not Normally Specialist Commission Broker - Floor T r a d e r - T w o Dollar B r o k e r - B o n d , Odd-Lot, M i s c e l l a n e o u s
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As a member of the N e w Y o r k Stock E x c h a n g e , what is your principal activity?
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On Floor
S._pec. 13 114 97 Z9 10
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Other
Total
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D o e s y o u r f i r m h a v e a policy or practice which: a.
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Restricts off-floor o r d e r s for the f i r m a c c o u n t or its E x c h a n g e members f r o m being entered during E x c h a n g e trading h o u r s ? Yes
No Not applicable
13 103 61
30 178 54
25 190 30
l 2.6 8
33 32
4 26 49
•73 556 234
32 80 64
55 ll5 87
91 I09 42
5 18 i0
iI 21 32
4 20 54
198 363 289
13 101 62
26 172 59
22 184 37
2. 25 7
3 28 34
11 18 49
77 52.8 248
b. Specially labels off-floor o r d e r s as being for the f i r m a c c o u n t or E x c h a n g e member's a c c o u n t w h e n they are sent to t h e F l o o r for execution? Yes No Not applicable c. I m p o s e s a n y other restrictions (in addition to the N Y S E regulations) g o v e r n i n g off-floor trading for the f i r m or E x ~ e m b e r ' s account?
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Recurring securities
describe: comments indicate that m a n y m e m b e r s a r e prohibited b y their f i r m s f r o m c a r r y i n g in a margin account and are required to pay full commission on NYSE transactions.
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Requires prior approval by any other partner or officer before execution of an on-floor trade?
Yes No Not a p p l i c a b l e b.
C.
19 57 10Z
Z4 199 38
Zl 165 55
1 Z6 I0
I 74 103
15 ZII 35
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174 63
Z8 8
Z Z6 35
3Z 48
67 505 Z88
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Requires that orders for o w n account be relayed back f r o m the Floor to your order desk before execution? Yes
No Not applicable d.
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Limits On-floor trades to those intended to be of long t e r m (6 m o n t h s or m o r e ) duration ? Yes No Not applicable
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7 179 70
47 134 6Z
I 28 8
14 18 30
Z Z6 50
I 58 116
3 Z05 49
Z0 179 46
30 7
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35 Z8
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80 441 331
Requires that any orders for t h e a c c o u n t of a floor m e m b e r be entered before the opening or after the close of the m a r k e t ? -
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D o e s your firm have a policy or practice which: a~
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D o e s your firm i m p o s e any other restrictions (in addition to the INYSE regulations) governing on-floor trading for o w n account? c
a. b. c.
Yes No Not applicable
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34 163 44
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10 25 28
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If yes, please describe: Restrictions frequently mentioned include outright prohibition of floor trading, prohibition of m e m b e r s carrying securities in a m a r g i n account and requirement that m e m b e r s pay full c o m m i s s i o n on N Y S E transactions.
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Does your policy restricting on-floor trading e x t e n d to $Z b r o k e r s w h o t r a n s a c t b u s i n e s s : for your firm on a Continuing basis ? a. b. c.
Yes No Not applicable
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in the past 24 months, executed an on-floor
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transaction for your own or your firm's account (other than in stocks in which you are registered as a specialist or odd-lot
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16 13 48 146
1 2 1 10
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3 6 4 63
55 5O 173 504
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please check: Prohibited by firm's policy Not our firm's practice Just too busy P e r s o n a l preference - don't care to trade for o w n or firm's account Not onFloor' n o r m a l l y Other (please explain below):
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A l m o s t daily A b o u t once or twice a w e e k A b o u t once or twice a m o n t h
If n e v e r ,
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Other
Total
Generally speaking, in the past 24 months, how often have you executed an on-floor transaction for your own or your firm's account (other than in stocks in which you are registered as a specialist or odd-lot dealer)?
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Firm' s Account A l m o st daily A b o u t o n c e or twice a w e e k A b o u t o n c e or twice a m o n t h A few times a year Never If never,
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I 3 I 13 142
4 I 18 92 109
27 18 6 40 135
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5 I 4 3 28
6 2 3 47
64 25 29 152 465
Prohibited b y firm's policy N o t o u r firm' s practice
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Just too busy Personal preference - don't care to trade for own or firm's account Not on Floor normally Other (.please explain below}:
22 6Z 6
Z8 77 4
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7 8 2
6 18 4
68 183 16
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17
16
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9
14
66
please check:
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A-6
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9
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7
3
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124
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Other
Total .=I
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In the past 24 m o n t h s , h o w often h a v e y o u e n t e r e d a n off-floor o r d e r for y o u r o w n or y o u r firm's a c c o u n t ? Own
Account
A l m o st daily A b o u t o n c e or twice a w e e k A b o u t o n c e or twice a m o n t h A few times a year Never
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I II i01 136
3 5 i0 87 128
4 9 11 9
i 2 3 Z5 40
Z 2 l0 35 30
18 32 6Z 318 406
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p l e a s e check: Prohibited b y firm's policy N o t o u r firm's practice Just too b u s y P e r s o n a l p r e f e r e n c e - don't c a r e to trade for o w n or firm's a c c o u n t O t h e r (please explain below) :
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32 2
IZ 45 7
i0 30 18
3 -
3 6 5
6 5
28 122 37
17 11
51 8
64 I0
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173 34
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Other
Total
I n t h e p a s t 24 m o n t h s , h o w often h a v e y o u e n t e r e d a n off-floor o r d e r for y o u r o w n or your firm's account?
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Firm.' s Account - +.
A l m o s t daily A b o u t o n c e or t w i c e a w e e k A b o u t o n c e or t w i c e a m o n t h A few times a year + Never If n e v e r ,
16 10 6 35 83
I 2 I 48 156
16 6 7 45 150
7
19 79 7
21
-
5
5
83
3
8
19
9
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3
3
Z6 9
Zl 14
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12
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36 23 26 147 470
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5
57 238 23 85 43
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please check: P r o h i b i t e d b y f i r m ' s policy Not o u r f i r m ' s p r a c t i c e Just too b u s y P e r s o n a l p r e f e r e n c e - don't c a r e to t r a d e for o w n o r firm' s a c c o u n t O t h e r (please e x p l a i n below):
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FoT.
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Other
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Total
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In t e r m s of dollars invested, roughly w h a t proportion of N Y S E transactions (on'~fl0or a n d • off-floor) for your o w n or firm's account during the past P-4 m o n t h s did y o u m a k e with the int____en___t that these transactions be of l o n g - t e r m {.6 m o n t h s •or m o r e ) duration? Own
Q
Account °
On-Floor
All Mo st About half Less than half Few None N o t applicable Don't k n o w
D
7 8 4 1 5 52 51 8
18 25
1 Z
9 '9
7 5 48 81 33 12
~-8 93 48 8
25 15 5 2 23 87 32 5
29 16 5 I 19 85 43 7
-
1 1 5 10 10
5 4 4 7 12 28 7 2
3 I 2 6 33 20 l
45 48 25 23 I09 297 162 31
7 3 2 4 5 25 8 2
23 9 i i 5 24
108 78 Z8 17
Off-Floo r
All Mo st About half Le s s than half Few None Not applicable Don't know
24 31 14
6 I0 38 27 11
A-9 ---
..
4 l 3 6 6 5 i
9 1
68 265 124 27
I
-
.
-
.
_
.
.
.
.
.
O. F . .
s_2_t£.
C.B.,
Other
Fo To
Total
In t e r m s o f d o l l a r s - i n v e s t e d , roughly w h a t proportion of N Y S E transactions (on-floor and off-floor) for your o w n or firm's account during " the past 24 m o n t h s did you m a k e with the intent that these transactions be of l o n g - t e r m (6 m o n t h s or m o r e ) duration?
&
•
Firm' s Account
.",
On-Floo r All Most A b o u t half L e s s than half Few None Not applicable Don't k n o w
5 5 3 4 47 52 6
8 11 6 3 57 84 32 8
3 I i 4 5 95 67 15
II 8 4
7 5 6 8 16 88 54 24
1
1 2 12 6 6 2
17 17
J %,
1 5 9 I 3
3 2 26 25 5
12 85 277 193 39
I I
Z9 31 21 16 5O 274 177 5O
O ff-Flo o r All M o st A b o u t half L e s s than half Few None Not applicable Don't k n o w •
:
9 15 I0 5 I0 48 37 I0
l
9 9~. 45 6
'
2
1 1 9 4. 7 Z
4 22 9 3
1 Z
Z0 25 5
ii A - 1-0
I
O. F.
I0.
F. T.
$z
Othe r
Total
Floor broker A phones an order f r o m the Floor to his office to buy i00 shares of Z Y X stoci< for his o w n account. T h e order is sent to the order desk and f r o m there back to theiFlo0r designated as.broker A's order. It is executed by floor broker B of the s a m e firm. a.
b.
No Not nece s sarily
97 35 14
207 46 6
174 59 iZ
33 4 -
52 16 3
55 16 4
618 176 39
96 24 8
Z16 Z8 9
181 5Z 8
35 2
56 i0 3
59 10 2
643 126 30
94 Z7 14
Z01 47 6
161 74 9
33 3
48 16
6
55 16 3
59Z 183 38
llZ 19
Z30 24
196 39
36 1
60
6Z
696
~9
ii
I03
7
2
8
-
1
Z
2O
W o u l d f l o o r b r o k e r B, i n e x e c u t i n g t h e order, be governed by the rules governing on-floor trading? Yes No Not necessarily
d..
0 o •
a~
W o u l d floor broker A, w h o originated the transaction, be required to report this transaction on F o r m 8Z ? Yes
C.
~o ~
D o you consider this transaction an on-floor trade ? Yes No Not necessarily
If t h e o r d e r h a p p e n e d to b e e x e c u t e d b y . f l o o r b r o k e r A, w h e n i t c a m e b a c k tO t h e F l o o r i , would you consider it an on-floor trade ? " Yes No Not necessarily
A-If .,_' ,.
C.B.
01 ~"
Y~
O° mo IL.
Spec.
C oB o
Fo To
$2
Othe_____~r
Total
At R partners' meeting of m e m b e r firm D, it is decided to buy I0,000 shares of stock Z Y X for the firm account. Partner J, w h o is also a • m e m b e r of the E x c h a n g e and w a s present at the meeting, then proceeds to buy on the Floor the I0,000 shares during the ensuing week. a.
t~
T h e a c c u m u l a t i o n of this block is subject to the rules governing . Floor trading Off- floor trading Neithe r
b.
~o~
70 46 17
141 89 24
89 115 38
Z0 15 1
29 27 14
38 27 7
387 319 10 !
W h i c h f o r m or f o r m s should be submitted to the E x c h a n g e in connection with this ac cumulation ? T h e correct a n s w e r is F o r m but v e r y few a n s w e r e d both.
82 and F o r m
121.
Many
members
answered
one
or
the
other,
!
I
,°
--}~ ~,...~.~, ,. ,:~
-.-t~. ~
L~; 4 -,--
4
A-12 5."
.-
Oo F , IZ.
b.
C.
d.
~t
Other
Total
~
114 15 4
Z50 I0 I
223 15 I0
36 i
66
86 15 14 6
2"51 3 1 Z
ZZZ 7 9 6
I01 Zl 7
231 ZZ 7
48
68
4 2
66 4 i
755 48 19
36 1 -
69 1 1
60 1 5 l
724 27 30 16
186 46 15
37 -
60 7 4-
50 17 3
665 113 36
65
.70
16
22
15
Z36
164 31
149 Z7
18 3
46 4
51 5
496 84
If specialist B had given $2 broker G an order to buy 1,000 shares of Z Y X stock while at his post at 9:45 in the morning, w o u l d you consider the execution of this Order an on-floor trade? Yes No Not necessarily
.
$__/_~
W h o w o u l d be required to report this transaction on F~orm 8Z ? Specialist B $ Z broker C B o t h B and C Neither
r-r
F,T.
W o u l d $2 broker C be g o v e r n e d by the rules covering on-floor trading while executing this trade ? Yes No N o t nece ssarily
'i'
C.B.
Specialist B, while at his post at noon, S u m m o n s $Z broker C and gives h i m an order to buy I, ODO shares of Z Y X stock in w h i c h B is no___t_~ registered as a specialist. a.
o.[
Spec.
If s p e c i a l i s t B h a d g i v e n SZ b r o k e r C a n o r d e r to b u y i , 000 s h a r e s o f Z Y X s t o c k w h i l e o n t h e train after the Close of the market, would you consider the subsequent execution of this o r d e r by C an o n - f l o o r t r a d e ? Yes No Not nece ssarily
14 A-13
;K-_~.~.- ~
O.F. i3.
Spec.
C.B.
F.T.
$2
Other
Total
C o m m i s s i o n broker A bids 91 for 2, 000 shares of Z Y X , 1/4 point b e l o w the last transaction and 2 points belo_._~wthe preceding close. Simultaneously, c o m m i s s i o n b r o k e r B offers I, 500 shares long (public order), c o m m i s s i o n brokers C and D each offer 500 shares long (public orders), and floor trader X offers 2, 000 shares long (from o w n account) - all at 91. Under a. b. c. d.
g s~ " ;f.:.
'
existing rules, w h o is entitled to sell?
B and either C or D (settled b y toss) B and either C or D or X (settled b y toss) B and X toss; if B wins, X, C and D toss X
73 i0 4 31
15 4 3 229
48 9 6 163
1 35
11 I 58
24 3 2 39
o
.2
172 27 15 555
D o you consider the existing rules governing this transaction fair to all c o n c e r n e d ? Why?
A significant n u m b e r of m e m b e r s do not feel it is fair that X is entitled to sell. indicate that they feel the public should c o m e first at all times.
Their c o m m e n t s
!
A n equally large n u m b e r of replies stated that,in m a n y similar situations, floor traders have voluntarily stepped aside and either have given the public orders preference or have r e d u c e d their offer so that the order w a s divided a m o n g the group. j
•
A-14 .
C
~ t L
.
C,
14.
B.
F.T.
$Z
Othe r
j
Total
We w o u l d l i k e y o u to i n d i c a t e h o w f l o o r t r a d i n g a c t i v i t y has affected the market in certain situations which you yourself have observed on theFloorover the past 24 months. Listed below are 9 m a r k e t situations. In e a c h situation w h e r e you have o b s e r v e d floor trading activity, please indicate w h e t h e r floor traders w e r e usually buying or usually selling (or both) and whether •- b a s e d on what you s a w h a p p e n - this floor trading activity has usually helped or hurt fair and orderly markets, (or both).
(.
If you o b s e r v e d floor trading, but could not d e t e r m i n e whether it helped or hurt fair and orderly m a r k e t s , please check the appropriate "Could not say" c o l u m n . If you cannot recall observing any floor trading for a given situation, check the "Did not o b s e r v e " c o l u m n for that situation. Floor T r a d e r B u y i n g
'.['- ":f
~ {it","
" -''" z~
M a r k e t Situation
a.
ff
/:
. . . .
t
Delayed
opening
Your Observation I
Helped Hurt Could not say
210 9 17
60 ii Zl
36
-
•," 4'
'
517 23 61
Reopening
Helped Hurt Could not say
Z 02 6 19
155 10 Zl
36 l
54 1 9
321 8
501 18 59
c.
L a r g e buy order
Helped Hurt Could not say
10Z 40 36
7Z 4Z 4Z
17 3 4
32 9 14
14 8 15
Z44 I 05 115
•:% "
36 1 8
b.
-" .7
%..
l
54 Z ii
A-15 /
~
M a r k e t Situation
~
~
~
-
-
~ _ _
Your Observation
Spec.
CoB.
F.T.
$2
Other
Total %~ ~
d.
-"?'P
"2"-k
"
r
- ;:".::--
Large
sell o r d e r
Helped Hurt C o u l d not say
Z08 5 19
165 8 14
36 1 1
58 7
37 7
5Z4 14 49
e.
Active stock
Helped Hurt G o u l d not say
149 25 49
108 42 34
34 3 2
41 Ii [3
23 6 [6
366 89 iZ0
f.
Inactive stock
Helped Hurt C o u l d not say
85 II 98
47 13 88
24 1 i0
27 3 Z4
II 6 2Z
Z05 34 Z47
g.
Unsettled price condition
Helped Hurt C o u l d not say
118 IZ 64
68 17 61
3Z Z Z
33 4 17
Ii 4 18
275 40 166
h.
M a r k e t crisis (e. g., 5/29/62)
Helped Hurt C o u l d not say
170 8 36
108 ii 34
33 Z
36 5 7
25 3 9
389 Z8 89
i.
Other
Helped Hurt C o u l d not say
II 1 4
5 3 Z
Z -
Z
1 4
19 4 IZ
:.-2
A-16
%<
C.B.
F.T;
SZ
Other
Total •u o
Floor T r a d e r Selling
M a r k e t Situation
o
Delayed opening
Helped Hurt Could not say
176 9 Z3
141 15 28
33 Z
49 3 13
33 i I0
451 28 79
b.
Reopening
Helped Hurt Could not say
171 II Z5
142 13 Z3
33 1
50 Z IZ
31 I 7
448 Z7 69
C.
L a r g e buy order
Helped Hurt Could not say
190 3 15
133 IZ 32
33 1
5Z 1 8
33 13
460 16 72
Helped Hurt Could not say
91 37
Z9
67 41 42
14 1 4
31 I0 Ii
13 I0 16
Z23 I01 106
a.
d.
I
Y o u r Observation
L a r g e sell order
-
e.
Active stock
Helped Hurt Could not say
141 Zl 39
93 43 38
33 1 1
38 II 13
2Z 5 19
338 8Z 118
f..
I n a c t i v e stock
Helped Hurt Could not say
71 I1 88
39 13 94
Z3 1 8
ZZ 3 Z6
7 7 26
17Z 35 Z51
g.
Unsettled price condition
Helped
89-
56
Hurt Could not say
16 67
Z3 66
Z5 Z 3
Z6 7 Z0
iZ 3 Z1
219 54 183
A-17
~
-o
4""
* %~.
~'~
, L~ ~
'*
~ ~
*"
M a r k e t Situation .
h.
M a r k e t crisis (e.g., 5/Z9/6Z)
i.
Other
Your Observation
Spec.
c.m,
F°To
$2
94
19
17 11 9
Helped Hurt C o u l d not s a y
28 43
49 39 47
Helped Hurt C o u l d not say
9 l 4
4 5 3
2
3
2
Other
Total
~.~;
9 11 16
197
i~:
119
~:i -'o-. :
1
16
I~J~....
3
iz
• o~ -o
°-
,
o
' x."
A-18
Spec. 15.
C.B.
$z
F.T.
Other
Total ~
From your own observations on the Floorover the past Z4months, have the various classes of members shown below - when engaging in floor trading conducted their activities in a clearly responsible manner
c ~-
? o
P r i n c i p a l Activity of M e m b e r a.
Floor trader Y e s - all do Y e s - m o s t do S o m e do a n d s o m e N o - m o s t do not N o - all do not N o opinion
b.
Commission
don't
Z3 36 12
Z18 334 85 6
Z
8
2O
30 33 3
32 35 3
273 300 36
106 iZl 23 4
5Z 121 38 Z
15 Z0 2 .
Z
7
1
113 106 18
88 105 9
10 Zl 3
-
i
~
-
8
13
Z
Z
.
ZZ 36 10 . .
broker
Y e s - all do Y e s - m o s t do S o m e do a n d s o m e N o - m o s t do not N o - all do not N o opinion
don't
1 8
33 J
C.
$Z b r o k e r Y e s - all do Yes - most do S o m e do a n d s o m e N o - m o s t d o not N o - all d o not N o opinion
I08 110 don't
A-19
64
18
lzl IZ
-
1
8
4
I0 Zl 3
34
30
3O 4
33 4
Z46 315 41 1
Z
3
9
36
~ C
0-4 j'~
S ~
B--____. C.
T______, F.
$___~Z
Othe~r
Total
c
d.
o
Specialist Y e s - all d o Yes - most do S o m e do a n d s o m e No No
113 I13 Ii
don't
- m o s t d o not - all do not
5
56 ii0 41
9
i0 ZZ
Z8
36
3 -
Z0 1
18
i
19
1
19
-
Z17 309 93 i i
7
Z3
lqo o p i n i o n q.
e.
Oth e r
.0
Y e s - all do Y e s - m o s t do S o m e do a n d s o m e N o - m o s t d o not N o - all d o not No
Z9 24 4
13 Z7 2
3 3 -
9 7 3
16 18 i
7O 79 I0
iZ
18
Z
5
I0
47
don't
opinion
A-20
k
16a.
b.
In the past Z4 months, have you personally o b s e r v e d any instances of questionable floor trading practices ? Yes No Not applicable
67 189 3
How
Zl 50
17 57 4
Z31 438 i0
~
•
....~- ,~ . ~
•
•
52 Z0 4 6 7 7
18 14 5 3 4 3
91 56 II ZO IZ I0
9 7 3 3 2 Z
.
A-ZI
.
.
!
•
H o w m a n y different individuals indulged in these practices ? One l~ew Half d o z e n M o r e than a half d o z e n
~
179 98 Z6 34 Z6 24
often did these instances o c c u r ? O n c e or twice T h r e e or four times A half dozen times A dozen times or m o r e
d.
15 22
If yes, w h a t w e r e these practices? Price manipulation Since m e m b e r s w h o observe illegal price manipulation are required to report it to the E x c h a n g e , it is likely that the response to question 16 w a s of the variety which, in the opinion of the respondents, violated the spirit of N Y S E rules but not the ru/es themselves. G o n g r egating Dominating market U n a u t h o r i z e d access to broker's order U n a u t h o r i z e d access to specialist's book I m p r o p e r bid or offer Other (please specify) "Other" practices cited include i m p e r m a n e n c y of bid or offer, c i r c u m v e n t i n g on-floor trading restrictions, and evasion of trading rules.
c.
III IZO 3
11 7 16 29
12 17 29 52
3 3 4 5
3 3 5 lO
5 5 3 5
34 35 57 101
I 31 18 16
2 43 40 Z7
1 9 3 2
1 11 4 5
I 13
6 107 65 54
4
"
t
i~
~,-~
i
~
~
~'"a
p,,,~
I .P ~ .~. 0
.T:". ]~ ~ ~
;~:
. . . . .
o . ~"
• .
17.
C.B.
18 75 160 6
1 3 44 77 105 2
I 2 6 26 2
11 17 41 -
6
84 199 375 16
18 78 107 31 19 4
19 115 86 6 5 1
11 19 6 1
7 36 22 1 4 -
5 28 26 6 10 7
60 276 247 44 38 13
•
F.T.
$2
Other
Total
/
°~-
o
o" .::'
:.
I
'-
/
In y o u r activities on theFloor, h a v e y o u p e r s o n a l l y e n c o u n t e r e d a n y instances in the past 24 m o n t h s w h e r e floor traders H a v e h a m p e r e d y o u r o w n efforts to C o m p l e t e a transaction? a. C o n s t a n t l y b. F r e q u e n t l y c. O c c a s i o n a l l y d. S e l d o m e. N e v e r f. N o t applicable
!8.
Spec.
_ 1
-
9 24 43
1 5
In y o u r activities on the Floor, h a v e y o u p e r s o n a l l y e n c o u n t e r e d a n y instances in the past 24 m o n t h s w h e r e floor traders h a v e helped y o u to c o m p l e t e a transaction?
.I. --.',~7 .:~
":. ~.~-
a. b. c. d. e. f.
Constantly Frequently Occasionally Seldom Never N o t applicable
o o~
:-,%.,-.: ..- ,..~
;. >-~ ~ .
•:~...'~..;... ~ i~_
.~.
.
-
- . .
A-ZZ •
-
-"
~i
~
~,
Size
Individ.
19.
o
e. f. g. h. i.
.
~._;'.% ,s- :~ . i%il
.- .....
o
-
A l w a y s contributes to profitability Usually •contributes to profitability Occasionally contributes to profitability S o m e t i m e s helps and s o m e t i m e s hurts profitability H a s no effect on profitability occasionally hurts profitability Usually hurts profitability A l w a y s hurts profitability N o opinion
~
.__ . ? , . . . . .
,:
.
.yq
• L!~ •
,,.x2,
Unclass.
Total
3
-
-
-
3
Z
6
II
3
Z
24
1
5
6
1
2
15
5 2
41 44
37 32
3 Z1
3 3
89 102
-
7
2
-
-
9
-
2
-
-
-
2
2
4
6
-
-
12
iridicate that increased volume,
o
L?
5 - 9
10 or More
f
If floor trading activity has helped or hurt profitability, in what w a y s ? Recurring comments profitability.
.;?
Z - 4
Firm
In the conduct of your business as a specialist, has floor trading activity affected the profitability of o ~ operations at any time within the past 24 m o n t h s ? a. b. c. d.
.
Of Specialist
o
A-23
regardless of the source,
tends to aid
°
~
Q
•
. - z ~ ~1
Size Of Specialist Firm 10Or 2 -4 5 - 9 More
Individ. ZO.
U n c l a s s.
Total
In fulfilling y o u r responsibility as a specialist to m a i n t a i n fair a n d o r d e r l y t r a d i n g in the stock(s) in w h i c h y o u a r e r e g i s t e r e d , h a s floor t r a d i n g activity c r e a t e d a n y p r o b l e m s for y o u at a n y t i m e w i t h i n the past 2 4 m o n t h s ? a. b. c. d. e. f. g.
Never Rarely Occasionally Frequently Usually Always No opinion
6 5 I . . i
80 28 6 ..
. .
55 35 2 i .
. .
.
24 3 l =
6 4 -
171
-
-
2
75
I0 I
. .
I
If so, in w h a t w a y s ? Criticisms
were
made
of the additional c o n f u s i o n a n d n o i s e level e n g e n d e r e d
b y the p r e s e n c e
of
~
floor traders.
m~ '~
..
l;_o~= .. ~_,~.-....:.+~.-,..,~
:_ .~ ;: .. .-.--;.~:~,~,.~
~+ •
" .i:~
~
A=24
~.
-
.
.
-
. . .
.
. _
._-~-~
=;:- :=~ ..........
~
"-++~+-+++:'K"~-
~ ~. ~,;-
o.;. 21.
F. To
$Z
Other
Total
-
W h a t classification of m e m b e r s on the-Fipp_r__':. do y o u feel should be a l l o w e d to trade for their o w n or their firm's a c c o u n t ? a.
Commission
brokers 93 Z7 8 20
215 Z0 8 7
179 29 6 17
33 1 1 1
49 14 Z -
62 5 1 8
631 96 26" 53
Yes
88
228
190
36
Z9
7
9
-
i0 19
IZ 3
6 16
1 -
57 8 2 -
63 3 3 6
66Z
No N o t sure INo opinion
Yes
No Not sure No opinion b.
c.
$2 b r o k e r s
34 44
Floor traders
I
Yes No N o t sure N o opinion d.
56
Specialists (Other than stocks in w h i c h Yes No Not sure N o opinion
118 l0 6 19
Z50 Z Z Z
204 6 4 15
38 -
65 -3 Z -
162 31 l0 Z3
36 -. l l
55 14 1 -
,
71 1 5
746 2P14 41
6?6 -2 6
642 95 Z9 50
they are registered) 94 Z9 11 18
A - 25;
Z33 15 4 Z
~"
~.___~ ~ C
~
2
.... "
'-:," ..
'
..,
.
;==::=m~-
--
~-----a
~
o
O.F.
e.
f.
Spec.
C.B.
F. To
$Z
Other
Total
~a~.~ .~;~.
~.
Odd-lot dealers (Other than stocks in w h i c h they are registered) Yes No Not sure N o opinion
90 Z6 9 24
glZ 24 5 8
155 Z9 6 30
30 4
46 13
55 i0
-
2
l
3
3
9
Yes INo Not sure N o opinion
50 12 8 34
121 4 i 12
68 4 33
13
Z0
Z3
-
3
2
1 1
I 5
. 9
588 106 23 77
Others 295 25 ii 94 ~ ~.o-A. ~. ,
If " N o " or "Not sure, " please give reason: o
Members c o m m e n t i n g on this question typically felt that a m e m b e r should utilize his time and capital pursuing his p r i m a r y function. In this way, conflicts of interest w o u l d be avoided, and better m a r k e t s would be maintained.
:~'~ -~: " .. .2"
. .-.~: ._~.._ A-26
o.F. ZZ.
S_p~.
C.B.
~ . T.
117 61 63 9
118 56 44 26
8 i0 15 5
$___K
Other
Total
Should G o v e r n o r s under certain c i r c u m s t a n c e s be e m p o w e r e d to prohibit t e m p o r a r i l y floor trading only in a particular stock? a. b. c. d.
Yes D e p e n d s on c i r c u m s t a n c e s No N o opinion
81 29 19 35
27 21 19 5
25 20 21 15
376 197 181 I05
If " Y e s " or " D e p e n d s on circumstances, " please specify w h i c h circumstances: T h e c i r c u m s t a n c e s m o s t often specified w e r e those in w h i c h a stock is fluctuating wildly and the G o v e r n o r s feel that floor trading w o u l d tend to accentuate the m o v e m e n t . ~4
O
A.-27 !~ ~ !:~~ ~' ~i 2-
•.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
~
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~
~
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o
.
.
.
.
.
~
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; ~ t .
1
:~:++~? ++ ~++:++'-i O.F. Z3,
Spec..
C, B.
F.T.
$2
"
Other
Total
_+~5+~._~ ~ ~++ ~
I
~ - -
J
~ / "~
W i t h respect to the n u m b e r of full-time floor traders, in your opinion w o u l d fair a n d o r d e r l y m a r k e t s be better s e r v e d by . a. . . f e w e r full-time floor traders ? b. . . about the s a m e n u m b e r as at p r e s e n t ? c .... m o r e full-time floor traders ? d. Not in a position to e x p r e s s a definite opinion at this time
9 Zl 39
10 99 71
35 88 50
I0 23
6 25 23
2 Zl Z0
62 264 226
90
76
62
3
16
37
284
--:,r&?
P l e a s e explain y o u r choice: .. ?+,,
T h e m o s t significant c o m m e n t s important, not the quantity.
state that it is the quality of the floor t r a d e r s p r e s e n t that is
o"
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O.F. 24.
Spec..
C.B. '
. much less floor trading? . somewhat less floor trading? about the same amount of floor trading as presently exists? d .... •somewhat more floor trading ? e. . . much more floor trading•? f. No£ i n a p o s i t i o n t o e x p r e s s a d e f i n i t e opinion at this time
a"
Other
Total
II 5
4 12
13 20
-
3 5
1 1
32 43
Z5 Zl 19
93 37 46
99 31 22
II 16 8
27 16 13
2Z 13 11
277 134 119
7.8
61
52
l
9
32
233
P l e a s e e x p l a i n your c h o i c e : Here
again,
most
comments
stress
quality
rather
than quantity
~, ~ 4:.~:-...= - ,'.:. C . "'~ ~,..~.' -. ,.:..: ,~ ~ ~
: ~.~. & ~ : - :
T
W i t h r e s p e c t to t h e v o l u m e o f f l o o r t r a d i n g , in your opinion would fair and orderly markets be b e t t e r s e r v e d b y . . . a.. b.. c ....
:
'
.:/: :.:.:~.~
:? . . . . . : . ' . . . : . ~
A-29
of trading.
.~ff r
[~'~ :2¢-a~ ~-7
~,
•
.
• 25.
.
Oo F .
Spec.
Co Bo
F . To
$Z
Other
Total
Disregarding your personal opinion of floor trading, does the existence of floor trading hurt the " i m a g e " of the N Y S E in the eyes of
<:
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the investing public or the financial community ? Inve s t i n g Public Yes
Probably •Perhaps Unlikely No N o opinion
• -4, "
•,.~" 2 . =~"
",. -:-:~:.= "~
Financial
~'~'~~
"
' i ~ "~I
Yes
N o opinion
!:i
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".
Z6 47 6Z
17 IZ 13 15 74 18
give the reason
8 15 Z8 .32 123 16
Zl 13 33 35 104 13
Z4
ii -
II II 17 3 Z5 3
9 13 19 I0 13 14
132 153 194 8Z Z05 74
3 6 Z 3 ZZ --
4 3 9 i0 Z8 4
Z 6 9 13 32 15
55 55 94 108 383 66
4
~ 9 '
~/~
c~ ~
. •
for your
R e c u r r i n g c o m m e n t s f r o m those a n s w e r i n g "Yes, " or "Probably, " indicate that a m i s u n d e r s t a n d i n g of the role of the floor trader, and the desire to find a scapegoat in the m a r k e t p l a c e on the part of investors, has led to a lowering of the i m a g e of the N Y S E . T h o s e a n s w e r i n g "No, " or "Unlikely, " felt that the floor trader is virtually u n k n o w n off the Floor of the E x c h a n g e , and"those w h o do k n o w of his activities do not feel negatively t o w a r d him.
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9 I" IZ
73 2Z
4Z 53 57 g8 48 15
Community
Probably Pe rhap s Unlikely No
Would you please answers :
35 Z8 Z7 13 35 20
~iii
A-,30 -£<
•
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O.F. 26.
Spec..
C.B.
F. T,
SZ
Other
c.
d. e. f.
Floor trading is essentially unethical T h e r e are s o m e aspects of floor trading w h i c h could be considered unethical U n d e r sound rules and p r o p e r surveillance, there should be not ethical problem s B y and large, there is nothing ethically w r o n g with floor trading Floor trading is fundamentally ethical Not in a position to express a definite opinion at this time
2
1
3
I
1
8
15
6
12
i
3
37
78
105
126
I0
30
31
380
An often repeated comment surveillance, and uniform
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.
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•
•
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21 24
50 90
45 51
5 23
20 Z0
12 22
153 230
Z6
6
6
states that there should be no ethical problems, interpretation of the rules by floor officials.
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2
52
Please explain your choice:
'
°
With respect to the ethics of floor trading, w h i c h one of the following statements m o s t nearly e x p r e s s e s your o w n point of v i e w ? a. b.
t -
~ 4
Total
A-3]
given
sound
rules,
proper
;~e,
,F
O, F. 27.
Spec.
C.B.
F.T.
-
$2
Other
Total
With respect to floor trading rules, w h i c h one of the following statements m o s t nearly e x p r e s s e s your o w n point of v i e w ? a. b. c. d. e. f. g. h.
Floor trading should be eliminated Floor trading rules should be m u c h m o r e restrictive than they are n o w Floor trading rules should be m o r e restrictive than they are n o w Floor trading is well-controlled u n d e r present rules Floor trading rules should be s o m e w h a t less restrictive than they are n o w Floor trading rules should be m u c h less restrictive than they are n o w T h e r e should be no restrictions on floor trading Not in a position to express a definite opinion at this time
9
1
5
1
-
16
5
4
6
2
Z
19
27
29
41
12
7
116
59
187
141
Z9
43
49
508
6
16
7
4
5
5
43
4
7
5
3
2
2
23
3
5
5
1
4
I
19
50
8
24
1
3
14
I00
°
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~:~
•
" - - ~. 0 2 " " v ' " - ~ ~
Please state r e a s o n for choice: T h e large n u m b e r of m e m b e r s w h o feel floor trading is well-controlled u n d e r p r e s e n t rules also c o m m e n t e d on the n e e d for u n i f o r m interpretation of these r,~les b y all floor officials.
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A-32
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In your
judgment
governing
a.
.
floor
and trading
reasonably
p:'--m
experience, .
I
Neutral
~* .
b. .
sufficiently .
' [ t . - ~ r - ' ~ - c.
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Other
Total o~.~. L v~ .o = ~ .:~ ~-~: .~ ~ " ~..• •%
.
43
47
1
.
i 16
88
7 .
15 .
Z0
18
152
.
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1
Z3
Z3
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?-96
w~-,~~'> < ~ - :" "':"
?
~Y~;:,~:'i 'r~ ' $ , "9. '~" 13
20
Z5
4
8
7
77
Z6
135
I 106
24
30
i 31
Z 352
"" ~"" " °: ~i~.......... ~2~.~.~--~
" :
23
l
Favorable
P-5
18
62
56
II
18
25
195
i00
82
16
22
15
260
37
40
3
14
19
131
:~.'°,:'/Q% .o
~
~
I
comment
. . e a s y to i n t e r p r e t in p r a c t i c e ?
[
Unfavorable
,
Neutral
.
Favorable
comment
comment
-
comment
Z
3
Zl
17
9Z
16
35
32.
-
-
1
6
24
2.6
19
299
4
12.
18
117
L
1:,.
e...
simple
to apply
on
the
floor.?
Unfavo rable comm
' ~
i
Neutral
i
f. '
I
•
easy
to
enforce
.
'
~
adherence
Unfavorable
to
comment
comment
Favorable ,
comment
--
3
-
1
1
5
Zl
12.0
9Z
2.3
-
Z5
18
Z99
62.
3
13
19
.175
4
-
-
I
8
57
Z4
2-6
15
in busy
markets? Neutral
". ,7~
ent
comment
Favorable
~ ." ;.!:, -,
26
comment
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22
comment
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.
Unfavorable comment Neutral comment
d.
$2.
worded?
" " ""~
"
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,
{ ~ . :~'.~ ."::* /--.7::,~:,4~ , [
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comment
Neutral comment Favorable comment
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.
comprehensive
Unfavorable 2~: ,..~q'-<.~
F.T.
rules
comment
Favorable
.~°
the
C.B.
uncomplicated?
Unfavorable
~:~
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Spec.
comment
2.6
52.
1
2.
15
98
~ : ~ ' > :,~" ; : f -•' " ,~ ''%0.:
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.
O, F° Z9.
S_S_S_S~.
C, B.
Fo T,
$2
Other
Total
Specifically, what changes in floor trading rules would you suggest? a. b.
c.
N o changes at all Not sufficiently acquainted with the workings of the rules in actual practice to m a k e suggestions at this time C h a n g e s as follows:
'7% c,~ ~ ~ , ~
Zl
Iii 15
151
81
18
30
16
317
38 57
93 45
18
23 13
45 14
310 162
B e c a u s e of the wide variety of a n s w e r s to this question, r e c o m m e n d e d in the next section dealing with further c o m m e n t s by m e m b e r s .
¢
changes will be covered
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NEW
YORK
STOCK
ELEVEN
HENRY
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EXCHANGE
WALL
N E W
Sec,~ion
..~_
STREET
Y O R K
5,
N.
Y.
M. W A T T S , JR. CHAIRMAN OF THE BOARD
December 19, 1963 TO:
All Members of the Exchange
SUBJECT:
questionnaire on Floor Trading
As you know, the Exchange has retained the management consulting firm of Cresap, McCormick and Paget to make an independent study of Floor Trading. This firm has been actively engaged in studying trading statistics, the SEC study and other reports. They have also observed operations on the Floor and interviewed members and others. The firm has found that it is impossible for them to interview personally every member in the time they have been given to prepare their Report. Since they would llke to have the opinions of all members, however, they have prepared the enclosed questionnaire in which they would like you to express your views on Floor Trading confidentially. It is urgently requested that you answer this questionnaire as completely as possible, and return it unsigned in the enclosed envelope not later than December 30. Your cooperation in this matter will expedite the study and enable our consultants to do a more thorough Job.
Enclosure
OWN
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CONFIDENTIAL ON MEMBER
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SURVEY OF MEMBERS TRADING FOR THEIR
.
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OF THE OWN OR
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NEW YORK STOCK EXCHANGE THEIR FIRM'S ACCOUNT
iHTRODUCTiOH A s M r . Watts pointed out in his letter, this is your opportunity to express your thoughts a n p n y m o u s l y and in c o m p l e t e confidence. W h e n you mail this questionnaire to us, i t b e c o m e s our property and no one connected with the N e w Y o r k Stock E x change will ever see it. W e wish w e could talk with all of you, b e c a u s e those m e m b e r s with w h o m w e have talked have been m o s t helpful. H o w e v e r , in the time available w e m u s t rely on this questionnaire to get your opinions and ideas° S o m e of your fellow m e m b e r s have aided us in m a k i n g sure that this questionnaire is clear and practical, and will provide a n s w e r s which will materially assist us in our work. In addition to the questions, space is provided for any additional c o m m e n t s you m a y wish to m a k e . Please return the enclosed questionnaire U N S I G N E D in the enclosed envelope no later than M O N D A Y , DECEMBER 30, 1963. If you have any questions, please call M r . J. W. O'Reilly or M r . T. E. Jensen, of the Floor D e p a r t m e n t . T h a n k you for your assistance. Y o u r s very truly, C R E S A P ,
M c C O R M I C K
and
P A G E T
YOURCLASSOFICArooH THE PURPOSE OF QUESTIONS 1 AND 2 IS TO ENABLE US TO CLASSIFY ANSWERS BY PRINCIPAL ACTIVITY OF MEMBER AND BROADLY BY SIZE OF FIRM. 1. As a member of the New York Stock Exchange, what is your principal activity? CHECK ONE
I
a. Member not normally on floor
1-1
b. Specialist
I-2
c. Commission broker
I-3
d. Floor trader
I-4
e. Two dollar broker
1-5
f. Other (bond, odd-lot, etc.)
1-6
THE FOLLOWING QUESTION IS TO BE ANSWERED ONLY BY SPECIALISTS, COMMISSION BROKERS AND MEMBERS NOT NORMALLY ON FLOOR. 2. What is tl~e total number of active partners or holders of voting stock (members and allied members) including yourself, in your firm?
CHECK ONE a. Individual member
2-1
b. 2 - 4
2-2
c. 5 - 9
2-3
d. 10 or more
2-4
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YOURFIRM'S POLICYOR PRACTICE- TRADIHGFOR SELF OR QUESTIONS ON THIS PAGE ARE FOR ALL MEMBERS 3. Does your firm have a policy or practice which: a, Restricts off-floor orders for the firm account or its Exchange members from being entered during Exchange trading hours?
CHECK ONE Yes
3-I
No
3.2
Not applicable
3-3
r
b. Specially labels off-floor orders as being for the firm account or Exchange member's account when they are s e n t to the floor for execution?
I
CHECK ONE Yes
C.
No
4-2
Not applicable
4-3
[
i
Imposes any other restrictions (in addition to the NYSE regulations) governing off-floor trading for the firm or Exchange member's account?
CHECK ONE Yes
r 5-2 i 5-3 ~
No Not applicable If yes, please describe:
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YOUR FIR~'S POLICYOR PRAC'(OCE "(RAOIHGFOR SELF OR FtR~ :ESTIONS ON THIS PAGE ARE FOR ALL MEMBERS Does your firm have a policy or practice which: a. Requires prior approval by any other partner or officer before execution of an on-floor trade?
CHECK ONE
Yes
6-1
No
6-2
Not applicable
6-g
b. l i m i t s on-floor trades to those intended to be of long term (6 months or more) duration?
CHECK ONE
Yes
7-1
No
7-2
Not applicable
7-3
Requires that orders for own account be relayed back from the floor to your order desk before execution?
C.
CHECK ONE ,
Yes
8- I
No
8-2
Not applicable
8-3
d. Requires that any orders for the account of a floor member be entered before the opening or after the close of the market?
CHECK ONE Yes
9- 1
No
g-2
Not applicable
9-s
Does your firm impose any other restrictions (in addition ~ the NYSE regulations) governing on-floor trading for own account?
CHECK ONE a,
1o-i
Yes
b. N o
lo-z
Co Not applicable
~o-a
If yes, please describe:
Does your policy restricting on-floor trading extend to $2 brokers who transact business for your firm on a continuing basis?
CHECK ONE a. Yes
I 1- 1
b. No
l l-~
c. Not applicable
l l-~
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YOUROWNEXPERIENCETRADING FOR SELFOR FIRB
,
QUESTIONS ON THIS PAGE ARE FOR A L L MEMBERS
QUE
7. Generally speaking, in the past 24 months, how often have you executed an on-floor transaction for your own or your firm's account (other than in stocks in which you are registered as a specialist or odd-lot dealer?) • ~l
Own Account
:
9.
CHECK ONE IN EACH COLUMN
I
..'
,
Firm's Account
Almost daily
IZ-i
13-1
About once or twice a week
iz-z
13-z
About once or twice a month
l Z-~
~3-3
A few times a year
~z-4
lS-~
N ever
, z- 5
13- 5
]
;
CHECK ONE OR MORE IN EACH COLUMN
If never, please check:
Firm's Account
Own Account Prohibited by firm's policy
14-1,
15-1"
Not our firm's practice
14-z.
15-2
Just too busy
14-~.
15-3'
1~-4.
15-4
Not on floor normally
14-5.
15-5""
Other (please explain below):
14-6.
15-6"
•
Personal preference - don't care to trade for own or firm's account
I
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:i!81 In the
past 24 months, how often ha@e you entered an off-floor order for your own or your firm's account.'? I
. f1,
CHECK ONE IN EACH COLUMN .!
Own Account
Firm's Account
Almost daily
16-1
17-1
About once or twice a week
16-2
17-2
16-3
17-3
A few times a year
16-4
17-4
Never
16-5
17-5
, ~About once or twice a month
"" If neverl 'please checl~:
CHECK
ONE OR MORE
Own Account
IN E A C H
COLUMN
Firm's Account
Prohibited by firm's policy
18-1"
19-1"
Not'our firm's practice
18-2"
19-2"
Just to 9 busy
1 8-3
*
I 9-3.*
Personal preference-don't care to trade for own or firm's account O t h e r ' (please explain below):
-
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19-4"
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YOUR OWN EXPERIEHCETRADIHG FOB SELF OR FIRi
t
QUESTIONS ON THIS PAGE ARE FOR ALL MEMBERS
. In terms of dollars invested, roughly what proportion of NYSE transactions Ion-floor and off-floor) for your own or firm's
account during the past 24 months did you make with the intent that these transactions be of long-term (6 months or more) duration.'? CHECK ONE IN EACH COLUMN
Own
Firm's
Account
On- Floor
On-Floor
Off- Floor
20-1
21-~
22-~
23-~
20-2
21-2
22-2
23.2
About half
20-3
z~-3
22-3
23-3
Less than half
20-4
z 1-4
22-4
23-4
Few
20-s
21-s
z2-s
23-s
None
20-6
21-6
22-6
23-6
z 1-7
22-7
23-7
21-6
22-8
23-8
All
Most
I
Off- Floor
Account
Not
.
applicable
.20-'/
Don't know
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YOUROWH IHTERP EI'ATIOH OF FLOORTRADiHGULES QUESTIONS ON THIS PAGE ARE FOR ALl_ MEMBERS
1 QU
BECAUSE OF THE COMPLEXITY OF FLOOR TRADING RULES, THERE MAY BE PROBLEMS OF INTERPRETATIOI', WE WOULD LIKE YOUR OWN INTERPRETATION OF THE RULES IN THE FOUR EXAMPLES DESCRIBED BELOW I N V O L \ | 12. ING TRADING ON THE EXCHANGE. PLEASE ANSWER THE QUESTIONS AFTER EACH EXAMPLE. 10. Floor broker A phones an order from the floor to his office to buy 100 shares of ZYX stock for his own account. The order is sent to the order desk and from there back to the floor designated as broker A's order. It is executed by floor broker B of the same firm. a. Do you consider this transaction an on-floor trade?
CHECK ONE Yes
24- 1
NO
24-2
Not necessarily
24-3
b, Would floor broker A, who originated the transaction, be required to report this transaction on Form 82? CHECK ONE Yes
25-1
No
25-2
Not necessarily
2s-~
r
c. Would floor broker B, in executing the order, be governed by the rules governing on-floor trading? CHECK ONE Yes
26- I
NO
26-2
Not necessarily
26-3
d. If the order happened to be executed by floor broker A, when it came back to the floor, would you consider it an on-floor trade?
CHECK ONE Yes
2~-~
NO
27-2
Not necessarily.
2?-3
!
~r~ 13.
At a partners' meeting of member firm D, it is decided to buy 10,000 shares of stock ZYX for the firm account. Partner
[~
J, who is also a member of the Exchange and waspresent at the meeting, then proceeds to buy on the floor the 10,000
LJ
shares during the ensuing week. a. The accumulation of this block is subject to the rules governing . . . CHECK ONE Floor trading
28-I
Off-floor trading
28-2
Neither
28-~
r
b. Which form or forms should be submitted to the Exchange in connection with this accumulation? I
-6m
I
•
,
.
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,
YOUROWN INTERPRETATBGI OF FLOORTRADBNGRULES QUESTIONS ON THIS PAGE ARE FOR ALL MEMBERS 12.
Specialist B, while at his post at noon, summons $2 broker C and gives him an order to buy 1,000 shares of ZYX stock in which B is no_~tregistered as a specialist. I
a. Would $2 broker C be governed by the rules covering on-floor trading while executing this trade?
CHECK ONE
Yes
29-1
No
29-2
Not necessarily
2g-3
CHECK ONE
b. Who would be required to report this transaction on Form 82? Specialist B
30- 1
$2 broker C
30-2
Both B and C
30-3
Neither
30-4
c° If specialist B had given $2 broker C an order to buy 1,000 shares of ZYX stock while at his post at 9:45 in the morning, would you consider the execution of this order an on-floor trade?
CH ECK ON E
Yes
3 ,-,
NO
3 !-2
Not necessarily
3 I-3
d. If specialist B had given $2 broker C an order to buy 1,000 shares of ZYX stock while on the train after the close of the market, would you consider the subsequent execution of this order by C an on-floor trade?
CHECK ONE
Yes
32-~
No
32-2
Not necessarily
32-3
13. Commission broker A bids 91 for 2,000 shares of ZYX, 1/4 point belo____wthe last transaction and 2 points below the preceding close. Simultaneously, commission broker B offers 1,500 shares long (public order), commission brokers C and D each offer 500 shares long (public orders), and floor trader X offers 2,000 shares long (from own account) all at 91. Under existing rules, who is entitled tosell?
CHECK ONE
a. B and either C or D (settled by toss)
33-1
b. B and eitl~er C or D or X (settled by toss)
33-2
c. B and Xtoss;
33-3
if B wins, X, Cand Dtoss
d. X
33-4
Do you consider lheexisting rules governing this transaction fair to all concerned? Why?
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YOUROBSE.RYAIIOHSOF FLOORRADII G ACIOVOIY QUESTIONS ON THIS PAGE ARE ONLY FOR MEMBERS WHO ARE NORMALLY ON THE F L O O R
QUE
14. We would like you to indicate how floor trading activity has affected the market in certain situations which you yourself '-' have observed on the floor ove~ the past 24 months.
163. Listed below are9market situations. In each situation where you have observed floor trading activity, please indicate • :whether floor traders were usually buying or usually selling(or both) and whether - based on what you saw happen ...this floor trading activity has usually helped or hurt fair and orderly markets, (or both). If you observed floor trading, but co~/Id not determine whether it helped or hurt fair and orderly markets, please check th~ • appropriate "Could Not Say" column. If you cannot recall observing any floor trading for a given situation, check the "Did Not Observe" column for that situation.
b. YOUR OBSERVATION OF:
Floor Trader Buying
~ MARKET SI•TUATION
Helped.
Helped
Could Not Say
Hurt
~34-2.
~34-3.
~34-4.
~
b. Reopening
~36-,.
~3s-z*
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~
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~
- - 3 6 - 2 *
_
_ _ 3 6 - 5 *
_ _ 3 6 - 6 ,
_ _ 3 6 - '
8. LargeSell
~ 3 7 - 1 ,
~ 3 7 - 2 ,
~ 3 7 - 3 ,
~ 3 7 - 4 ,
~ 3 7 - 5 ,
~ . 3 7 - 6 ,
~ 3 7 - '
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40-6*
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Inactive
• g,
h.
Stock
Unsettled Price Condition Market Crisis
• '(e.g. 5/29/62) i. Other (please
36-1,
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specify): 42-1"
iS.
Could Not Say
Hurt
~34-1.
a.
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Floor Trader Selling
DID NOT OBSERVE FLOOR TRADING ACTIVITY
~
42-2'
~
42-3"
~
42-4'
~
42-5
=
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42-'~
c',
From your own observations on the floor over the past 24 months, have the various classes of members shown below when engaging in floor trading - conductedtheir a c t i v i t i e s in a clearly responsible manner?
CHECK ONE IN EACH COLUMN Principal Activity Of Member Floor Trader Yes
- all do
Yes - most do
L~
~r
~ :
Broker 43-1
~
Broker
44-1
~ 4 5 - 1
43-2
44-2
_ _ .
Speciali st "
46-1
45-2
- - 4 6 - 2
~
43-3
44-3
45-3
46
3
N o - most do n6t': ,
~ .
43-4
4 4 - 4
45-4
46
4
43-5
44-5
~
45-5
43-6
44-6
~
45-6
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there have been instances of floor trading which were no....~tclearly responsible, please indicate in what ways:
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OBSERVATiOHS OF FLOORTRADUG ACTgVUTY
QUESTIONS ON THIS PAGE ARE ONLY FOR MEMBERS WHO ARE NORMALLY ON THE FLOOR In the past 24 months, have you personally observed any instances of questionable floor trading practices? /
CHECK
ONE
Yes
48-I
No
48-2
Not applicable
48-3
If yes, what were these practices?
CHECK ONE OR MORE Price manipulation
49-1
Congregating
49-2
Dominating market
49-3
Unauthorized access to broker' s order
49-4
Unauthorized access to specialist's book
49-5
Improper bid or offer
49-6
Other (please specify):
49-7
How often did these instances occur?
CHECK ONE Once or twice
50-1
Three or four times
50-2
A half dozen times
50-3
A dozen times or more
50-4
How many different individuals indulged in these practices?
CHECK ONE One
5 1- I
Few
5 i-2
Half
dozen
More than a
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17. In your activities
:
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the floor, have you personally
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have hampered your own efforts to complete a transaction?
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sa-2
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s2-3
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s2-4
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sz-s
f. Not applicable
s2_6
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18. In your activities on the floor, have you personally encountered any instances in thle pi~st 24 months where floor trader.' ,i
have helped you to complete a transaction?
• :'i CHECK ONE ao Constantly.•
53-1
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53-2
c. Occasionally
53-3
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53-4
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53-5
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.
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CHECK ONE % Fio x irading is essentially unethical
.
67-I
,:,. "l'he.'e are some aspects of floor trading which could be considered unethical
II
67-2
I
::o Unc~r sound rutes and proper surveillance, h ~ ' e should be no ethical problems
67..9 I
,:io By ~nd large, there is nothing ethically wi'ong wi th ,.':Ioo.r trad in g -:°
!-io~ r trading is ~:undarnentally ethical
.:°
iqo; in c~ position to e)@ress a definite c.pJnion at this time
67-4I 67-5
67-6
Pleose explain your choice:
28.
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YOURTHOUGHTSOH FLOORTRADING RULES i
+ ,<
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+. . . . . . .
"~ESTIONSON THIS PAGE
ARE
FOR ALL MEMBERS
[+27. With r e s p e c t to f l o o r t r a d i n g r u l e s , w h i c h o n e o f t h e following s t a t e m e n t s most n e a r l y e x p r e s s e s y o u r own p o i n t o f
view?
CHECK O N E . a. Floor trading should be eliminated
68-1
b. Floor trading rules should be much more restrictive thc~ they are now
68-2
c. Floor trading rules should be more restrictive than they are now
_
d. Floor trading is well controlled under present rules
68-3
68-4
e. Floor trading rules should be somewhat less restrictive than they are now
68-5
f. Floor trading rules should be much less restrictive than they are now
68-6
g. There should be no restrictions on floor trading
68'-'7
h. Not in a position to express a definite opinion at this time
68-8
Please state reason for choice:
8. In your judgment and experience, are the rules governing floor t r a d i n g . . . PLEASE COMMENT ON EACH O.
• reasonably uncomplicated?
6g-
b.
• s u f f i c i e n t l y comprehensive?
70-
C•
• clearly worded?
71-
d.
. easy to interpret in practice?
72-
e,
• simple to apply on the floor?
73-
f.
• easy to enforce adherence to in busy markets?
!9.
74-
Specifically, what changes in floor trading rules would you suggest?
CHECK ONE
a. No changes at all
75-1
b. Not sufficiently acquainted with the workings of the rules in actual practice to make suggestions at this time
75-2
c. Changes as follows:
75-3
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YOUR FURTHER COMMEHrS
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This space is for all m e m b e r s '
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T h a n k you for helping us to develop an authoritative account of floor trading.
CRESAP, McCORMICK and PAGET
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