Changes Helping NYSE Grow Market Share
June 1, 2009
Following a year of significant changes, the New York Stock Exchange appears to be holding on to its execution market share and perhaps even regaining some of its luster as an execution venue.
"NYSE has created one of the best venues for competition, liquidity, depth of book, and finding where and how securities should be priced," says Anthony Conroy, head trader at BNY ConvergEx, adding, "Those things are key for traders upstairs, where algorithms are less important."
Conroy, whose firm ranks third in terms of NYSE execution volume, points to the exchange changing its specialists last September into designated market makers (DMMs)--taking away the former's "first look" at arriving orders and giving the latter more trading freedom and incentives. DMMs are now on equal footing with NYSE's floor brokers and other market participants in terms of viewing and acting on bids and offers but now have more freedom to hedge positions.
The NYSE has distinguished itself from the other exchanges by adopting an allocation model that gives the providers of the best bid or offer the first 15 percent of the execution, and divvies up the rest among all the participants. The exchange is slower than competitors such as Nasdaq and BATS Trading, which execute trades in less than a millisecond. However, its "parity" approach, compared to competitors executing trades according to price and time priority, can provide an attractive alternative. "It gives me the ability to join the price, even if I arrive a bit late," Conroy says, adding NYSE has greatly speeded up executions in the last year.
NYSE says now some stocks trade in under 10 milliseconds, although a few remain over 100 milliseconds, and soon all will be below 10 milliseconds.
NYSE implemented many of its market structure changes last fall, with the bear market in full gear. At the start of the year, the exchange had just over 21 percent market share, and that has remained steady, according to Tabb Group's LiquidityMatrix. The percentage is less than half the exchange's overall market share from a few years ago, but an improvement over the latter half of 2008, when its share dipped into the high teens. Meanwhile, arch-competitor Nasdaq saw its share slip from the mid-30s in the first two months of 2009 to the low 30s in March and April.
For many years, NYSE charged providers of marketable and limit orders a relative low fee to execute trades. That fee was about one-third competitors' for marketable orders, but those execution venues also provided rebates to limit-order providers. Last fall, NYSE adopted a "maker-taker" model as well, giving DMMs lower fees and higher rebates than other exchange participants.
"NYSE is pulling people in with the different rate structure," says Will Geyer, president and CEO of Jones Trading. He adds that DMMs and Surplus Liquidity Providers (SLPs), which receive lower fee benefits than DMMs but also have fewer quoting obligations, are now more "empowered to provide opening and closing prints for each stock."
Geyer also notes that NYSE lifted a prohibition on floor brokers trading market-on-close orders after 3:40 p.m., to avoid exacerbating imbalances of buy and sell orders. "NYSE is trying to find ways to create an edge for market makers and floor participants, and they've been successful," Geyer said, adding, "More than 80 percent of execution volume for listed stocks at market openings and closings trades through NYSE."
