2 STAFF REPORT A REPORT ON THE OPERATION OF THE CINCINNATI SYSTEM: 1978-1982 This study, which was prepared by the Commission's Directorate of Economic and Policy Analysis, sets forth the findings to date of the Commission's program to monitor the operation of the Cincinnati Stock Exchange National Securities Trading System ("NSTS"). This report updates the findings of the 1981 Monitoring Report and provides, for the first time, an analysis of the manual linkage between the NSTS and the Intermarket Trading System ("ITS"). The NSTS is a fully automated electronic trading system which enables members of the Cincinnati Stock Exchange ("CSE"), without the necessity of maintaining a presence on the floor of the CSE or any other exchange, to participate in the system by entering into computer terminals bids and offers for securities for their own account and as agent for their customers' accounts. As of August 1982, there were 12 "upstairs" firms participating in the NSTS. Of these 12 firms, 10 were approved dealers, who participate in the NSTS by entering agency and dealer quotations through terminals located in their respective trading rooms, while two upstairs firms participated in the system in an agency capacity. A specialist on the floor of an exchange linked to the NSTS can also directly enter bids and offers into the system in any stock traded in the NSTS ("NSTS Stock") for which the specialist is registered. At the present time, only specialists on the floor of the Boston Stock Exchange ("BSE") can participate in this manner, since the BSE is the only exchange with NSTS terminals on its floor. This report includes, for the first time, data on the intermarket volume flow between the NSTS and participants in the Intermarket Trading System ("ITS"). The CSE became a participant in the ITS on February 11, 1981 as a result of a manual interface between the NSTS and the TTS enabling users of the NSTS to trade with market professionals located in market centers participating in the TTS. Since the inception of the linkage, the CSE has been a net importer of ITS share volume. During April 1982, for example, the CSE received 1.7 million shares from the other ITS participants and sent 1.1 million shares to these exchanges. Moreover, each of the TTS market centers sent more volume to the CSE than it received from this exchange. The number of NSTS Stocks has grown since the system began operating in June 1978 when trading commenced in 38 NSTS Stocks. During 1980, this figure increased to 49, and at the end of 1981, there were 73 NSTS Stocks. By August 1982, the number of securities traded in the system increased to 88. Of these, 85 were New York Stock Exchange ("NYSE") listed issues and three securities were listed on the American Stock Exchange. |