Trading Methods

Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority and you can order it here)

The bases for payment and delivery for transactions in stocks on the New York Stock Exchange are three:  (1) cash (for delivery on the same day), (2) regular way (for delivery on the fifth full business day following the day of the transaction), and (3) seller’s option, wherein the seller may deliver from six days to not more than sixty days from the day of the transaction, at his option, giving notice to the buyer one business day in advance.

The pertinent rules from the New York Stock Exchange Directory and Guide are as follows.

Bonds, Rights, and 100-Share-Unit Stocks – Rule 64.  

Bids and offers in securities admitted to dealings on an issued basis shall be made only as follows, and may be made simultaneously as essentially different propositions, but when made without stated conditions shall be considered to be “regular way”:  (1) “cash,” i.e., for delivery on the day of the contract, (2) “regular way,” i.e., for delivery on the fifth business day following the day of the contract, (3) “seller’s option,” i.e., for delivery within the time specified in the option, which time shall be not less than six business days nor more than sixty days following the day of the contract, except that the exchange may provide otherwise in specific issues of stocks or classes of stocks and except that on the second, third, fourth, and fifth business days preceding the final day for subscription, bids and offers in rights to subscribe shall be made only “next day,” i.e., for delivery on the next business day following the day of the contract, and on the day preceding the final day for subscription shall be made only for cash.

Cash delivery must be specified in an order.  It would be resorted to whenever there is need for maximum speed in the sale of a stock, such as for tax purposes, or to obtain stock quickly, such as for voting purposes.  The seller’s option basis is a deferred delivery; pursuant to Rule 137, written contracts (in forms approved by the exchange) must be exchanged between the parties not later than the second business day following the transaction.

Less than 100-Share-Unit Stocks – Rule 65.  

Stocks having a unit of trading of less than 100 shares, not assigned by the exchange for dealings by the use of cabinets as provided in Rule 85 (a procedure, off the floor, for trading in inactive stocks), shall be dealt in as provided in Rule 64 (above).  Anything contained in the rules to the contrary notwithstanding, the following rule shall apply to deliveries of less than 100-share-unit stocks dealt in pursuant to this rule:

Unless the exchange directs otherwise, an odd lot of stock sold by an odd-lot dealer for his own account shall be delivered on the fourteenth day following the day of the contract, and may be delivered on any business day prior thereto, except that delivery shall not be made before the fifth business day following the day of the transaction, unless otherwise agreed.

U.S. Government Securities – Rule 66.  

Bids and offers in securities of the United States government admitted to dealings on an “issued” basis shall be made only as follows, and may be made simultaneously as essentially different propositions, but when made without stated conditions hall be considered to be “regular way”:  (1) “cash,” i.e., for delivery on the day of the contract, (2) “regular way,” i.e., for delivery on the business day following the day of the contract, (3) “seller’s option,” i.e., for delivery within the time specified in the option, which time shall be not less than two business days nor more than sixty days following the day of the contract, except that the exchange may provide otherwise in such securities.

Because regular way delivery is one day on U.S. government securities, the seller’s option therefore runs from two days to not more than sixty days.

Repeal of Former Rules.  

When Rule 64 was amended on February 9, 1968, so as to pertain to bonds and rights, as well as 100-share-unit stocks, former Rule 67 (pertaining to convertible bonds), Rule 68 (pertaining to other bonds), and Rule 69 (pertaining to fourth day or delayed  delivery and to disagreement) were repealed.  

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