Reducing Costs of Stock Transactions: A Study of Alternative Trade Completion Systems
Vol. I: Summary of Results
Many of the operational problems of the New York Stock Exchange originate in the trade completion part of stock trading activities. RAND has developed methods for analyzing these problems, including a simulation model to test performance implications of policy and procedural alternatives without costly actual experimentation. It is estimated that at a trading volume like that of 1968, several recommended changes would produce an annual savings of $120 million for the industry as a whole: use of partial deliveries, delivery priorities, reduction of transfer time, and reduction of other causes of delay in completing transactions — specifically, DKs (bank refuses to accept delivery), uncompared trade (no broker-to-broker delivery), and wrong denomination (stock transfer required). These savings are net of the outlays required to accomplish the essential changes in the operating system. At higher levels of trading, when the NYSE handles 20 million shares per day and the activity in the other markets increases correspondingly, savings would be approximately $177 million.