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NYSE to Phase Out "Go-Along" Orders
Traders Magazine Online News, April 10, 2008
The New York Stock Exchange, in the process of upgrading the technology used by its floor brokers, will likely retire its venerable CAP order.
"We are exploring the replacement of CAPs with more effective alternatives that better respond to broker and customer input," an NYSE Euronext spokesperson said.
CAP, or convert-and-parity, orders have long been an important part of trading on the NYSE floor. Also known as "go-along" orders, they are handled by specialists on behalf of floor brokers busy with other tasks.
The institutional orders require specialists to trade along with market prices, but never set them. That allows the customers to quietly transact at prices that don't vary too much from the day's average.
Since the advent of the NYSE's Hybrid marketplace, however, use of CAPs has dropped significantly. The NYSE has built trading functionality into its handhelds that lets floor brokers do the job themselves.
Also, the NYSE's market share has been cut in half, leaving traders with fewer shares to go along with. That makes it difficult for traders to justify using the order types to achieve price goals.
During March, there were 2,125 conversions, or activations, per day of CAP orders, according to the NYSE. That is down from 4,401 conversions in October 2007 and 6,762 in June 2007.
The NYSE recently announced it would embed algorithms into floor brokers' handhelds that will automate the quoting and trading process. That means CAP orders will be used even less, traders say.
"Brokers will configure the algorithm to do what the CAP used to do," one floor broker said.
The NYSE acknowledges CAPs are less useful. "The CAP order doesn't work as well in this environment," Lou Pastina, the NYSE's executive vice president of operations, told Traders Magazine recently. "So we think algorithmic access is a much better tool. We will upgrade the brokers to that."
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