NYSE Proposes Doubling LRP Ranges

By: Ray Pellecchia

File Under: NYSE

• 4 Comments
• Email Entry

A number of you have said that NYSE needs to change the Liquidity Replenishment Point (LRP) ranges so that the LRPs aren't triggered as often. Yesterday we filed a proposal to double the ranges. Here's an excerpt (footnotes omitted):

Pursuant to NYSE Rule 1000(a)(iv), LRPs are pre-determined price points that function to moderate volatility, improve price continuity, and foster market quality in a particular security by temporarily converting the electronic market to an auction market and permitting new orders, the Crowd, or the specialist, to add liquidity. Pursuant to NYSE Rule 60, Autoquote is suspended when an LRP is reached and resumes in no more than five to ten seconds after the LRP is reached. Autoquote resumes unless there is interest on the NYSE Display Book® system that would lock or cross the market. In such case, Autoquote will resume with a manual transaction.

LRPs are calculated by adding and subtracting a value to the security’s last sale price. The LRP values are based on an examination of trading data and vary based on the security’s NYSE average daily volume (“ADV”), price, and volatility. The values used to calculate the LRP’s range do not change intraday and are disseminated daily by the Exchange on its website.

Modification to LRP Value Ranges

The Exchange proposes to amend NYSE Rule 1000(a)(iv) to double the current LRP ranges in order to limit the number of times that an LRP is reached and the total number of times during the trading day that automatic execution is suspended as a result of an LRP being triggered. In this way the Exchange will allow for more continuous automatic executions of securities. While the purpose of the LRP is to dampen volatility and to provide market participants with time to react, the Exchange believes that the proposed amendment is necessary to lessen artificial limitations on trading and will ultimately provide beneficial trading opportunities for its customers. As a means of controlling volatility, LRPs are intended to be triggered infrequently, i.e., when the market is experiencing a large price movement (based on a security’s typical trading characteristics or other market conditions) over short periods of time during the trading day. If an LRP is triggered too frequently, trading in the security is overly restrained and does not meet the competitive needs of NYSE customers. As such the NYSE believes that doubling the current LRP value ranges will better facilitate the natural trading pattern of a particular security.