THE ABC's OF THE
ABS*
* Automated B__ondS__ystemof the New York Stock Exchange
1.)I{AI"T :
Novcl,I)c[
22,
_1.911
INTRODUCTION
A l t h o u g h c o r p o r a t e stocks have long a c c o u n t e d for most of the
s e c u r i t i e s b u s i n e s s t r a n s a c t e d on the N e w York Stock Exchange,
the very first issues traded by the E x c h a n g e ' s founders were,
in fact, g o v e r n m e n t and bank bonds -- and, later, bonds issued
by A m e r i c a ' s g r o w i n g c o r p o r a t e enterprises.
With the i n t r o d u c t i o n and a c c e p t a n c e of e q u i t i e s as an e f f e c t ive means of f i n a n c i n g c o r p o r a t e d e v e l o p m e n t and e x p a n s i o n ,
however, the m a r k e t for stocks soon o u t p a c e d the m a r k e t for
bonds.
And for many decades, i n n o v a t i o n in the m a r k e t p l a c e
focused a l m o s t e n t i r e l y on i m p r o v i n g stock t r a d i n g facilities.
T o be sure, the NYSE Bond M a r k e t c o n t i n u e d to be a s i g n i f i c a n t
factor in c o r p o r a t e bond trading over the years -- even though
much of the bond b u s i n e s s g r a v i t a t e d to d e a l e r s away from the
Exchange.
However, new c o m p e t i t i v e u r g e n c i e s t h r o u g h o u t the s e c u r i t i e s
industry, c o m b i n e d with a d r a m a t i c u p s u r g e in b o n d - t r a d i n g
activity in r e c e n t years, u n d e r s c o r e d the i n a d e q u a c y --indeed,
the a n t i q u i t y - - of e x i s t i n g NYSE f a c i l i t i e s and made clear an
i m p o r t a n t need for thorough r e d e s i g n and m o d e r n i z a t i o n of the
E x c h a n g e ' s bond t r a d i n g system.
The A U T O M A T E D BOND SYSTEM d e s c r i b e d in this
that need by r e p l a c i n g the costly, tedious,
manual p r o c e d u r e s of the past with the m o s t
m o d e r n c o m p u t e r technology.
ABS is, in the
total bond q u o t a t i o n and t r a d i n g s y s t e m that
in three words:
b o o k l e t fulfills
time-consuming
sophisticated
truest s e n s e , a
can be summed up
Speed...Precision...Economy.
We b e l i e v e the A U T O M A T E D BOND SYSTEM h e r a l d s the start of an
e x c i t i n g new era in the NYSE Bond Market.
A n d we b e l i e v e that
after r e a d i n g this brief d e s c r i p t i o n of how ABS is geared to
serve i n s t i t u t i o n a l and i n d i v i d u a l investors, l i s t e d c o r p o r a tions and N Y S E m e m b e r firms, you will share our enthusiasm.
/s/
W I L L I A M M.
Chairman
BATTEN
7
-2-
Except for a r e l a t i v e handful of more active convertible
issues handled by the "free crowd," trading in corporate
bonds has t r a d i t i o n a l l y been a tedious, time-consuming
and mostly manual operation that involved nine d i f f e r e n t
steps and hour-long searches through cabinet f i l e s for
possible matches on bonds, prices, q u a n t i t i e s .
Now, thanks to ABS, the magic of e l e c t r o n i c s , Computer
banks, and video terminals, a l l the information v i t a l
to trading any bond in a universe of more than 3,000 ~
d i f f e r e n t issues can be flashed before you in a matter
of seconds.
Current quotes, size, volume, i n t e r e s t
rates, y i e l d s , m a t u r i t i e s , l a s t sale -- even late news
b u l l e t i n s concerning companies behind the bonds.
And a c t u a l l y placing an order has become as simple as
a single phone call or pressing a few buttons.
We expect, of course, that ABS w i l l revolutionize bond
trading.
In terms of total transactions and the size of blocks
traded on the Exchange.
depth, and l i q u i d i t y .
I n t e r m s of d o l l a r volume,
In terms of a s t e a d i l y growing
number of new l i s t i n g s that w i l l continue to underscore
the New York Stock Exchange as the paramount marketplace
f o r bonds.
-3-
F__ORINDIVIDUAL INVESTORS the Automated Bond System means
immediate entry o f any bids or offers they care to make
into the ABS computer bank - - and maximum p o t e n t i a l
f o r execution at the best p r e v a i l i n g prices.
FOR MEMBER.FIRMS i t guarantees f a s t e r , b e t t e r quotes and
a "best execution" c a p a b i l i t y f o r a l l of t h e i r customers
trading l i s t e d bonds; provides i n s t a n t access through
t h e i r bond correspondent or t h e i r own subscriber display
units to a complete range of information on any s p e c i f i c
issue; creates an e r r o r - f r e e system of order e n t r y ,
execution, and d e t a i l e d documentation of every transaction, every working day; and permits dramatic savings.
in time, paper work, bond personnel -- and money.
FOR INSTITUTIONS, ABS should herald the advent of a brand
new market - - a market thoroughly competitive w i t h any
other bond dealer markets in scope, size and l i q u i d i t y .
A market they can check, enter and use with a single
phone call
to any member f i r m that subscribes to ABS.
AND FOR LISTED COMPANIES, ABS i n i t i a t e s
much broader,
more comprehensive exposure of t h e i r bond issues; provides instantaneous video screen rundowns f o r bond
traders and investors in member f i r m o f f i c e s across
the land on m a t u r i t i e s , y i e l d s ,
i n t e r e s t rates, pay-
. . .
P)
--
4
=
ment dates -- even late news b u l l e t i n s concerning
s p e c i f i c companies and t h e i r s e c u r i t i e s f o r bond
traders and investors.
There's more to the Automated Bond System, of course.
Much more.
So the f o l l o w i n g pages and diagrams were designed to
t e l l you j u s t how i t works; how i n d i v i d u a l
investors,
member f i r m s , i n s t i t u t i o n s and l i s t e d companies might use
i t to best advantage.
And how to become a subscriber.
-5-
Fundamentally, ABS is an e l e c t r o n i c r o u t i n g system f o r
feeding quotes, trades and other essential
information
on corporate bonds into - - and out of - - a c e n t r a l ,
computer bank.
ABS subscribers are provided with video d i s p l a y units
that can i n s t a n t l y
t r a n s m i t - - or receive -- a l l
the
facts and information necessary f o r making tile bond
f l o o r on the New York Stock Exchange the f a s t e s t , most
efficient,
error-free
and economical market f o r cor-
porate bonds anywhere in the world.
For example, these i l l u s t r a t i o n s :
,J
-6-
Quotation Service
Generates instantaneous quotes for any Bond issue listed
on the NYSE. Provides a panoramic view of the latest
information with on-screen updating.
The Quote Display provides:
Bond Symbol, current yield,
•interest rate and maturity date information; price and
time of opening trade; high and low; last trade and
tick information along with the t i c k , price and date of
the previous last sale; volume figures; news indicators;
date of last interest payment; and interest accrued to
settle~ent date, i f any,
Under certain conditions, no quotes are shown. For
example, when trading is halted, the market i s n ' t open -or for any other reason, as indicated by the Quote Display.
Individual bond orders previously entered into the System
can be recalled at any time for examination simply by
keying in the Bond Symbol and Order Identification Number.
-7-
Order Entry_
Press a button and the "Order Ticket" format appears
on the screen.
Then use the keyboard to enter order
data.
Once the completed order appears on the screen, validate
i t and push another button to enter i t into the ABS data
bank for automatic e d i t i n g and processing.
Orders may be entered p r i o r to the I0:00 A.M. Bond Market
opening.
ABS c u r r e n t l y processes any l i m i t orders f o r
non-convertible bonds under any of the following conditions:
Day Order; Good-Till-Cancelled; Immediate or Cancel; All
or None; S e l i S h o r t ,
Cash; and Next Day D e l i v e r y .
-
8
-
Order Execution
Enter an order into the System, and ABS automatically
generates responses depending on the action dictated
by the entry.
Orders may be accepted, matched, part
matched, referred to the supervisor for action, verified or rejected.
I f an entered order is p a r t i a l l y executed, the option
is provided to either cancel the remainder or leave i t
in the ABS computer f i l e for subsequent execution.
Execution reports are printed on the Floor of the Bond
Room for each matched trade.
These suggested matches
are made available to participating brokers for final
approval.
b..
-9-
Transaction Report
Shows a l l orders matched by the system.
Provides p r i n t -
out records of a l l transactions,
The NYSE retains one copy of this report; the remaining
copy goes to the appropriate brokers for signature,
-I0-
Activity
Report
Summarizes every subscriber f i r m ' s ABS bond a c t i v i t y
a t the end of each day for record keeping purposes.
Each subscriber receives a Computerized l i s t i n g ,
a l p h a b e t i c a l l y b y bond, containing the following
information:
Trade A c t i v i t y - a l i s t i n g of the match details for
each trade.
Order A c t i v i t y - a l i s t i n g of a l l new orders entered
during the day including those cancelled and replaced.
Bond A c t i v i t y
- for each bond l i s t e d , a price a c t i v i t y
• sunB~ary and any status changes.
A s i m i l a r report is provided for each member organization that clears i t s own bond trade or for which i t is
the clearing broker.
-II
-
Cabinet D i ~
Push a button and every order on f i l e for a p a r t i c u l a r
bond issue appears.
All individual orders are l i s t e d
in sequence by price, beginning with the highest bid
and the lowest o f f e r .
Orders are easily i d e n t i f i a b l e in this display to
insure e f f i c i e n t monitoring,
Each order has the firm
name and given member, along with the Order Number,
next to i t .
Only a firm that issues an order knows
where i t originated,
To cancel or adjust an order, simply key in the Bond
Symbol and Order Number obtained from the Cabinet
Display and make the change,
-12-
Trade History Display
Chronologically tabulates all the trades that have taken
place in a particular bond by subscribing members, up to
any point in the trading day,
Keying in the Transaction Sequence Number (TSN) permits
review of any matched trades participated in.
Quantity,
names and clearing numbers for all contra side p a r t i c i pants in the trade appear.
L..
-13-
P r o f i l e Display
Provides quick assessment of current market f o r a
p a r t i c u l a r bond,
Presents a composite of the number
of bonds wanted or offered, showing as many as 13
d i f f e r e n t prices,
Information a u t o m a t i c a l l y updated'
to r e f l e c t a bond's current status,
-
14
-
Bond Issue Directory
Shows all Bonds listed on the New York Stock Exchange.
Alphabetically, by corporate name, along with corresponding bond symbols and other identifying information.
J,
-15-
Newsletter . Display
Push a button f o r any news developments concerning a
company with l i s t e d bonds outstanding.
The display starts with the most recent news message
entered into the system and works backwards to include
all
the news messages f o r the day.
Whenever a quote is requested, the system a u t o m a t i c a l l y
indicates whether any current news items have been
entered f o r reference,