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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

--

- 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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VI-5

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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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I

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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VI-8

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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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in error

- 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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VI-9

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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

O.F. Spec. C.B. F.T. :.

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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

C.

B.

3 Z9 61 IZ8 3O

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Spec.

C

B.

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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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Yes NO Not applicable If yes.

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please

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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Other

Total

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

5

I

174 63

Z8 8

Z Z6 35

3Z 48

67 505 Z88

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23 540 Z97

Z0 4Z

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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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9 56 lll

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

3Z 46

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

6 67 104

31 190 35

34 163 44

1 30 6

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

5 45 126

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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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7

7

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4

19

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51

55

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17

33

169

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1

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134 ZZ

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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Account

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)?

q

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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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5

I 3 I 13 142

4 I 18 92 109

27 18 6 40 135

gl I 4

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

5 17

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

I -

7 8 2

6 18 4

68 183 16

i0

17

16

-

9

14

66

please check:

114

7

A-6

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9

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1

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Z

7

3

Z

5

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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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=

iZ 18 19 59 63

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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3

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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17 Z

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?

o_

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+

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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

-

3

3

Z6 9

Zl 14

-

12

I0

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16 ii

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+- :+-j,

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Z 2 3 6 43

36 23 26 147 470

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+.

3

1

5

57 238 23 85 43

J

%

++

i I 4 31

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.

$__2_~

Other

..r

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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.

.

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$2

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Total

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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

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. 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

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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 ....

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of trading.

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.

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Spec.

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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

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Yes

N o opinion

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17 IZ 13 15 74 18

give the reason

8 15 Z8 .32 123 16

Zl 13 33 35 104 13

Z4

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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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Community

Probably Pe rhap s Unlikely No

Would you please answers :

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F. T,

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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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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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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,

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-

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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

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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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In your

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governing

a.

.

floor

and trading

reasonably

p:'--m

experience, .

I

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sufficiently .

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88

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8

7

77

Z6

135

I 106

24

30

i 31

Z 352

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l

Favorable

P-5

18

62

56

II

18

25

195

i00

82

16

22

15

260

37

40

3

14

19

131

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comment

. . e a s y to i n t e r p r e t in p r a c t i c e ?

[

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,

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.

Favorable

comment

comment

-

comment

Z

3

Zl

17

9Z

16

35

32.

-

-

1

6

24

2.6

19

299

4

12.

18

117

L

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simple

to apply

on

the

floor.?

Unfavo rable comm

' ~

i

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i

f. '

I

•

easy

to

enforce

.

'

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adherence

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to

comment

comment

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comment

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3

-

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1

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18

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62.

3

13

19

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4

-

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8

57

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15

in busy

markets? Neutral

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comment

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comment

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comment

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worded?

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comprehensive

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rules

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uncomplicated?

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52.

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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

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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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SURVEY OF MEMBERS TRADING FOR THEIR

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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

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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

[

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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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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

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Account

Not

.

applicable

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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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1'0

B Z

-~ ; ,

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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?

-7!,

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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-,.

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~

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~

- - 3 6 - 2 *

_

_ _ 3 6 - 5 *

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_ _ 3 6 - '

8. LargeSell

~ 3 7 - 1 ,

~ 3 7 - 2 ,

~ 3 7 - 3 ,

~ 3 7 - 4 ,

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~ 3 7 - '

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Inactive

• g,

h.

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Unsettled Price Condition Market Crisis

• '(e.g. 5/29/62) i. Other (please

36-1,

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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

=

_

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

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~

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

No

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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

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dozen

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17. In your activities

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53-1

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53-2

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53-3

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53-4

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53-5

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.

67-I

,:,. "l'he.'e are some aspects of floor trading which could be considered unethical

II

67-2

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::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

.:°

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67-4I 67-5

67-6

Pleose explain your choice:

28.

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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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CRESAP, McCORMICK and PAGET

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