April 24, 2000 TO: ALL MEMBERS AND MEMBER ORGANIZATIONS SUBJECT: RULE 127 Rule 127 requires a member seeking to cross block orders outside the prevailing quotation to inform the specialist of his or her intention to execute the transaction at a pre-determined, specific price (the "clean-up" price). The member must determine the extent of the interest the specialist has in participating in the transaction. There should not be any intervening trades by the member between the time he or she informs the specialist and the trade or trades to clean up the block. A member may, however, trade with the current bid or offer if the clean-up price for the block is no greater than one-sixteenth of a point away from the current quotation and both sides of the cross are agency orders. The specialist should not change the quotation prior to a Rule 127 trade in order to have the clean-up price of the cross occur at or within the quotation. If the member is doing a Rule 127 trade at a discount (premium), he or she should cross the block by bidding (offering) at the clean-up price and offering (bidding) one-sixteenth of a point higher (lower). If the member announces his or her intention to do a Rule 127 trade, the member should not "walk the book" by trading with buy (sell) orders on the book at their limit prices above (below) the clean-up price of the block cross. If the member effects a block cross below the bid or above the offer in this manner, the member would be in violation of Rule 127. Additionally, if a specialist is aware of a Floor broker's intention to do a Rule 127 trade and the broker "walk's the book" prior to the Rule 127 trade, the specialist would be in violation of Rule 104.10 with regard to his or her agency responsibility to effectively execute agency orders entrusted to him or her if the specialist allows the broker to trade with public orders on the book at prices inferior to the clean-up price (or the break-up price if the broker crosses the block as a result of an excessive amount lost at the clean-up price). If the member does not announce his or her intention to do a Rule 127 trade, the specialist should require the broker to give the clean-up price to public orders that were on the book if the broker "walk's the book" and subsequently executes a block cross which the specialist believes should have been announced and executed under Rule 127 prior to the member's trading with orders on the book. Questions regarding this matter may be directed to David Fisch at 656-6769 or John Gregoretti at 656-6791. Robert Tharp
marketsurfer-- same one as on CS? That was some good stuff you (?) were posting! What are you up to now?