• Jan
  • 19
  • 2007
  • 4:30 PM

Q&A: Can specialists re-set LRPs?

By: Ray Pellecchia
File Under: NYSE, NYSE

A prop. trader writes:

hey ray,

question: I noticed during trading in one of the hybrid stocks today the LRPs were changing a bit as volume kicked in to the down/upside. If the value for the LRP is set at say, 50 cents, does the specialist have the ability move the value down to 10 or 20 cents?

JT -- The specialist has no ability or discretion to re-set the Liquidity Replenishment Point. The value (such as 35 cents for a $100 stock trading fewer than 500,000 shares per day) is pre-determined, using a volume-and-price formula.

Here is the basic chart of how the LRPs are calculated, and here is the table that we update daily (Excel version) with the LRP range for each Hybrid Market issue.

Throughout the trading day, of course, the actual level of the LRP moves with the price of the issue and is re-calculated every 30 seconds based on the current price. Again, that's systemic -- not handled by the specialist.

Hope that helps, JT. Thanks again for writing!

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Comments

The LRP contaminates the idea of an open freely traded electronic market. This has the smell of a cookie given to the few remaining post-extinction era specialists in order to give them one last insider's edge to unfairly compete with the trading community. The good news is that it shouldn't last for more than a year or so. The snowball has turned into an avalance and such manipulation "methods" will get run over. Hoorah for the NYSE to be one of the very last exchanges in the world to finally convert to electronic trading... It was like prying a last silver dollar out of their grasping dying hand.

by Nasdaq Trader on January 24, 2007 9:32 AM

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