• Source: Program trading

Program trading is a type of trading in securities, usually consisting of baskets of fifteen stocks or more that are executed by a computer program simultaneously based on predetermined conditions. Program trading is often used by hedge funds and other institutional investors pursuing index arbitrage or other arbitrage strategies. There are essentially two reasons to use program trading, either because of the desire to trade many stocks simultaneously (for example, when a mutual fund receives an influx of money it will use that money to increase its holdings in the multiple stocks which the fund is based on), or alternatively to arbitrage temporary price discrepancies between related financial instruments, such as between an index and its constituent parts.
According to the New York Stock Exchange, in 2006 program trading accounts for about 30% and as high as 46.4% of the trading volume on that exchange every day. Barrons breaks down its weekly figures for program trading between index arbitrage and other types of program trading. As of July 2012, program trading made up about 25% of the volume on the NYSE; index arbitrage made up less than 1%.




History


Several factors help to explain the explosion in program trading. Technological advances spawned the growth of electronic communication networks. These electronic exchanges, like Instinet and Archipelago Exchange, allow thousands of buy and sell orders to be matched very rapidly, without human intervention.
In addition, the proliferation of hedge funds with all their sophisticated trading strategies have helped drive program-trading volume.
As technology advanced and access to electronic exchanges became easier and faster, program trading developed into the much broader algorithmic trading and high-frequency trading strategies employed by the investment banks and hedge funds.




Program trading firms


Program Trading is a strategy normally used by large institutional traders. Barrons shows a detailed breakdown of the NYSE-published program trading figures each week, giving the figures for the largest program trading firms (such as investment banks).




Index arbitrage


Index Arbitrage is a particular type of Program Trading which attempts to profit from price discrepancies between the basket of stocks which make up a stock index and its derivatives (such as the future based on that index). As of July 2012, it makes up less than 5% of the active Program Trading volume on the NYSE daily.




= Premium buy and sell execution levels

=
The "premium" (PREM) or "spread" is the difference between the stock index future fair value and the actual index level. As the derivative is based on the index, the two should normally have a very close relationship. If there is a sufficiently large difference the arbitraging program will attempt to buy the relatively cheap level (whether that is the basket of stocks which make up the index or the index future) and sell the relatively expensive product, making money from the price discrepancy. The fair value calculation takes into account the time to expiration of the future contract, the dividends received from holding all the stocks, and the interest cost of buying the stocks.




Regulations






= United States

=
In the United States, program trading has been subject to regulation and oversight in response to concerns about its impact on market stability and volatility. The New York Stock Exchange (NYSE) introduced rules known as trading curbs or circuit breakers to address extreme volatility caused by program trading during the 1980s and 90s. Depending on the severity of price movements, these rules can lead to the halt of all program trading or restrict the trading of sell portfolios to upticks only.
In addition to NYSE rules, regulatory bodies like the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have established rules governing algorithmic trading strategies, including high-frequency trading (HFT). FINRA Rule 3110 (Supervision) outlines the regulatory requirements for member firms engaged in algorithmic strategies.




= China

=
The China Securities Regulatory Commission (CSRC) has introduced a monitoring and reporting mechanism for program trading in Chinese stock markets in 2023. Stock exchanges in Shanghai, Shenzhen, and Beijing will implement rules on program trading and establish reporting systems to monitor unusual activities. These measures are set to take effect on October 9, 2023. The move comes in response to concerns about the role of computer-generated algorithms in stock trading, which have been blamed for exacerbating sell-offs in China's struggling stock markets.




See also


Automated trading system
Algorithmic trading
High-frequency trading
Alternative trading system
Electronic trading platform
Dark pool




References

• Source: Program Trading

Program Trading (foaled April 22, 2020) is a multiple Grade 1 winning British-bred American-trained Thoroughbred racehorse. The horse as a three-year-old in 2023 the horse won the Grade 1 Saratoga Derby at Saratoga Racetrack and the Hollywood Derby at Del Mar Racetrack.




Background


Program Trading is a bay ridgling who was bred by Fittocks Stud, located in Upend in Cambridgeshire and Arrow Farm and Stud. Bloodstock agent Mike Ryan bought both Program Trading and Domestic Spending at the 2021 Tattersalls October Yearling Sale where they were consigned him to sale and Ryan purchased him for 250,000 guineas (US$356,551]).
Program Trading is sired by Irish-bred Lope de Vega. Lope de Vega will stand for a 2024 stud fee of €125,000 at Ballylinch Stud in Ireland. Program Trading is the first stakes winner and one of two winners in three starters for the Oasis Dream mare Dreamlike. A winner once in six starts with three seconds, Dreamlike is a half sister to Group 2 Park Hill Stakes winner Silk Sari. Program Trading's third dam is Irish champion Gossamer, a full sister to 1994 Breeders' Cup Mile winner Barathea.
Program Trading is trained by Chad C. Brown and owned by Seth Klarman's Klaravich Stables.




Statistics






Pedigree



Through his sire, Product Trading was inbred 4s × 4s to Machiavellian, meaning that this stallion appears twice in the fourth generation of his pedigree.




References

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