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February 1, 2003

A New Chill in NYSE Book Freezing? Conditition Q: The Unmentionable Word for Specialists

By Gregory Bresiger

Upstairs traders may find executions on the Big Board becoming more difficult.

These traders, some operating blocks or miles away from the floor, are running into a phenomenon one dubs Condition Q'. That's the wording next to price-quote information on traders' screens whenever trading in a listed stock is temporarily halted.

Condition Q, which was prevalent in recent months, is a non-regulatory halt imposed by the exchange when there are order imbalances. It occurs, said one upstairs trader who did not want to be named, when specialists "freeze the book" in a stock.

When this occurs, specialists halt trading for a minute or two to catch up. This can result in the trading spread widening during the intermission. That practice, which was at the center of complaints, was investigated by the SEC last year, according to some pros. An SEC spokesman declined comment. A spokesman for the New York Stock Exchange had no comment as of presstime. Specialists have dismissed the earlier criticism. But Condition Q could open old wounds.

"The Condition Q occurs all day long in most stocks even in the most active issues," one upstairs pro told Traders Magazine. "Essentially, the specialists are trying to lock out any upstairs trader who does not have a dedicated floor broker, or any floor broker, from participating in liquidity from other institutions."