Limit Orders Go On-Line In AMEX Specialist Pilot

The American Stock Exchange is testing a personal computer that allows a specialist to electronically store and execute limit orders.

The first computerized order book went on-line August 11 at the post where Forest Laboratories' stock is traded by specialist Dennis Goin.

In addition to maintaining a fair and orderly market in his assigned stocks, a specialist is required to accept orders that cannot be filled immediately.

Specialists on the New York Stock Exchange write these limit orders down in a book, while their counterparts on the Amex keep them in a file.

Although the Amex was the first stock exchange to install touch-screen terminals for executing market orders, it has lagged behind the NYSE in computerizing the storage and execution of limit orders. More than 100 electronic display books for limit orders are in operation on the NYSE floor.

The Amex has selected an IBM PC for the six-month pilot in Forest Labs. But when the computerized book is rolled out on the floor next year, the exchange will use intelligent terminals connected to a fault-tolerant mainframe, says Mark Smith, vice president of technology.

Space and reliability considerations led the Amex to choose centralized, instead of distributed, processing, says Smith.

Limit orders are entered in the computerized book in one of two ways. Orders sent to the Amex floor through the AUTOPER (Post Execution Reporting) or AUTOAMOS (Amex Options Switching) electronic delivery systems automatically appear on the computer screen.

AUTOPER accepts limit or market day orders of up to 1,000 shares while AUTOAMOS handles limit or market day orders of up to 10 options contracts.

Right now, the Amex's electronic order routing systems accommodate only day orders, but they will be expanded to include good 'til cancelled orders by the end of the year, says Allen S. Cohen, director, floor methods and systems.

Paper limit orders physically carried to the specialist's post by a broker are recorded in the electronic book by a clerk using a GRID portable terminal.

By touching the screen of the electronic book, the specialist can either take the other side of a limit order or match it with a market order represented by a broker standing in the crowd.

The transaction is then immediately reported to the tape and entered into the trade comparison system operated by the Securities Industry Automation Corp., which is jointly owned by the Amex and the NYSE. Confirmation reports are automatically sent to member firms.

While a specialist is using the touch-screen feature to execute a trade in one issue, he can also view limit orders in other stocks.

The computerized book can handle up to 12 different issues. Size and price parameters can be set so that certain incoming limit orders are displayed in an acknowledgement box at the bottom of the screen.

For a sell order entered in the electronic book, the specialist can insure that the owner of the securities receives any cash or stock dividends by touching a box on the screen.

Although the electronic book in Forest Labs marks the first time limit orders have been electronically executed at the Amex, the exchange has been using John Fluke Manufacturing Co. touch-screen terminals to fill market orders since 1983.