More Q&As re LRPs

By: Ray Pellecchia

File Under: NYSE, NYSE

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Proprietary trader Brian Roseman writes (and for purposes of making this easier to follow, I'll break up his questions with answers as we go):

Q: I have a few questions regarding LRPs for you. Let's say that stock XYZ is quoted on the NYSE at 50.10 x 50.16, 2000 x 2000, and the LRPs are at 50.02 and 50.24. Now let's say that a 50,000 share sell market order comes into the stock and trips the LRP at 50.02 after 24,000 shares of the 50,000 have traded. What happens next? Does the specialist show the rest of the offer to the street and spread the stock down to a point where he thinks he can bring in enough buyers to satisfy the order?
A: No, the LRP is quoted and a trade is required. If the specialist believes that gapping the quote will draw additional buy interest to complete the order at a better price, he or she will be able to do that for orders greater than 10,000 shares or $200,000 in value.

Q: Will auto-executions be turned off until the sell order is satisfied?
A: Yes.

Q: Or will the LRPs be recalculated in 5 seconds and the auto-executions be allowed to continue?
A: No.

Q: What courses of action can the specialist take in this situation?
A: See above. In the end, the specialist must clear the crossed market with a trade that fully eliminates the crossed situation.

Q: Will the ECNs be allowed to continue to trade below the 50.02 price level while the specialist is finding the fair market for the sell order?
A: Yes. NYSE will be indicated as having an LRP bid -- that is, non-firm/slow by definition.

Q: Will the specialist be forced to route out to other marketplaces such as ECNs or regional exchanges in this instance?
A: If the resulting trade crosses another market, the portion that would trade trough would be routed automatically.

Q: I appreciate your help with my questions.
Best regards,
Brian Roseman

A: And I appreciate the good questions, and my Hybrid-Building Colleague's help in answering them.

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