PHLX System Will Be Ready By July 1 For Pre-Opening, VWAP Equities Orders

PHILADELPHIA--The Philadelphia Stock Exchange (PHLX) will go live with its Volume Weighted Average Price (VWAP) Trading System (VTS), a pre-opening order matching system for the execution of large-sized equity orders, sometime before July 1 of this year.

The VTS is for large-sized equity orders at the VWAP, say officials from Universal Trading Technologies Corp. (UTTC), a subsidiary of Ashton Technologies Group, who worked closely with PHLX in developing the system. VWAP is the average price for a stock weighted by the volume of shares of that security traded in the standard way, including all corrections during the trading day on all securities exchanges in the US as reported to the Consolidated Tape Association (CTA).

VTS is an automated transaction system with an order-matching algorithm for execution and a self-regulatory organization (SRO) surveillance standard for calculating the VWAP. Pre-opening matches will be made at the daily VWAP price, determined from all trades occurring during the same day as reported to the CTA, a system that continuously provides the last sale price and volume of any securities transaction in listed stocks to the public. Designed for use with block trades (5,000 or more shares), VTS is geared towards broker/dealers wishing to bring financial institutions into the exchange.

VTS will function as a separate exchange system for PHLX members and their non-member customers. The PHLX has not revealed which securities specifically will be eligible for the system, though they are to include 300 of the most active listed securities according to dollar value. The SEC approval is also subject to a further review by the PHLX.

Bill Morgan, CIO at PHLX, says UTTC's system has interfaces to the PHLX's systems. The PHLX calculates the VWAP and UTTC handles the matching algorithm, used to match the orders, says Morgan.

Morgan says the system is similar in some respects to the Optimark Trading System from Optimark Technologies that is used by the Pacific Stock Exchange for order matching. Both systems are said to provide anonymity in the market, reducing market impact of trades. PHLX has been working with UTTC since late 1994 or early 1995, says Morgan. The system has been more or less ready since April 1997; pending SEC approval to go live, the system has been enhanced technologically since then.

VTS is interfaced to the PHLX Automated Communication & Execution System (PACE), which is based on a combination of Sun Microsystems and Stratus Computer hardware. PHLX is currently upgrading PACE to Stratus Continuum hardware, says Morgan.

While VWAP as a pricing mechanism is relatively new to exchange trading, block trades as well as some Nasdaq trades are currently executed as average weighted pricing trades, say UTTC officials. They add that some industry observers feel that VWAP provides a measurement of the best trade execution at the lowest cost.

After a morning order-entry period, executions for the VTS will be done around 9:20 a.m., with the VWAP calculated and assigned near 4:20 p.m. each day. VTS will be available for specified, highly capitalized securities.

REB Securities, a UTTC subsidiary and a registered broker/dealer, will operate VTS.

VTS will offer electronic access to participants, including over the Internet, say UTTC officials.