Nine-Bond Rule

What Was the Nine-Bond Rule?

The nine-bond rule, otherwise called Rule 396, was a requirement by the New York Stock Exchange (NYSE) that all orders for nine bonds or less be shipped off the trading floor for no less than 60 minutes. Around then, it was expected that a market for such securities can be found. In any case, in the event that the order was not filled inside the hour, the customer could ask the broker to try to take care of the request away from the exchange or over-the-counter (OTC).

The NYSE proposed taking out the nine-bond rule in Feb. 2005, and on Aug. 1, 2005, the Securities and Exchange Commission (SEC) approved the elimination of the rule. The purpose of taking out the nine-bond rule was to work with the efficient execution of bond transactions on the NYSE without compromising more modest customer orders.

Understanding the Nine-Bond Rule

Bonds will generally trade all the more habitually on the over-the-counter (OTC) market. The nine-bond rule didn't make a difference to orders directed to the OTC market. Due to the relative inactivity of bond trading on the NYSE, the nine-bond rule, which empowers an order to remain on the floor for one full hour, was put in place to earn the best conceivable price for the individual investor.

The trading of bonds has never been all around as consistent and transparent as that of stocks, even however the U.S. fixed income market is substantially larger than the U.S. equity market. Many reasons exist for this disparity. Chief among them is liquidity. There isn't sufficient daily trading activity in that frame of mind to work with such transactions through online brokerage accounts or in odd lots. The nearest equivalent to discount stock trading is the TreasuryDirect.gov website, which empowers individual investors to purchase Treasury securities straightforwardly from the responsible U.S. government.

The Evolution of Bond Trading and the Nine-Bond Rule

For a really long time, many brokerage firms and investment banks (known as primary dealers) kept up with large inventories of bonds on their balance sheets to work with efficient trading. Yet, the job of primary dealers has declined since the implementation of the Volcker Rule in 2015, which precluded governmentally supported banks from trading for their own profit.

Physical exchanges, similar to the NYSE, have likewise lost a share of fixed income trading as the majority of the market has moved to electronic organizations to buy and sell bonds. Large numbers of these organizations are used by office just brokers, who are accepting the share of fixed income trading that primary dealers were forced to surrender.

The nine-bond rule was considered significant due to the large size of most fixed income transactions.

Features

• The nine-bond rule, otherwise called Rule 396, was a New York Stock Exchange (NYSE) requirement that orders for nine or less bonds be shipped off the trading floor for no less than one hour so the individual investor can gather the best conceivable price.
• The NYSE proposed killing the nine-bond rule in Feb. 2005, and on Aug 1, 2005, the Securities and Exchange Commission (SEC) approved the elimination of the rule.