The Rule Filings: NYSE to Provide Non-Displayed Liquidity to Retail Investors
July 6, 2012
NYSE Euronext (NYX) has received approval from the U.S. Securities and Exchange Commission (SEC) to establish a first-of-its-kind Retail Liquidity Program, designed to give price benefits to retail stock traders by exposing their orders to undisplayed orders from market players.
The program is designed to produce cost savings for individual investors through price improvement on retail order flow on New York Stock Exchange (NYSE) and NYSE MKT listed and NASDAQ UTP-traded equity securities.
Under the plan, institutional investors, proprietary trading firms, algorithmic traders and other market participants will place market or limit orders that offer improved prices to orders coming in from retail investors. Those orders will not be displayed publicly.
Retail orders coming in can be designated to just come in for price improvement through the liquidity program or to move from that book to the NYSE order book or from that book to the NYSE order book and then other market centers, Joseph Mecane, Executive Vice President, NYSE Euronext, told Securities Technology Monitor.
Two new sets of brokers will act on orders from retail investors under the program. The Retail Liquidity Program is complementary to existing marketplace offerings for retail investors and is intended for use by retail brokerage firms directly and market intermediaries that service retail order flow providers.
NYSE Euronext expects to activate the RLP on both the NYSE and NYSE MKT markets on Aug. 1, 2012.
“Right now, exchanges need to give the same prices to customers, regardless of who they are, whereas, non –exchanges have the ability to give better prices for particular customer groups,” Mecane told the Monitor. “This program allows an exchange for the first time the treat retail orders a little bit differently and potentially get better prices than they would at the public market place.”
Mecane said that the program will offer liquidity that is available inside the best bid or offer in the marketplace.
“We will send out an indicator when we have the liquidity available and people will be able to send in retail orders to interact,” he said.
The new program will make this possible by establishing two new classes of market participants on NYSE and NYSE MKT:
• Retail Liquidity Providers (“RLPs”), which would be required to provide price improvement (“Retail Price Improvement Orders”) for certain retail order flow (“Retail Orders”) in the form of interest that is better than the best protected bid or the best protected offer (“PBBO”). Similar to our other dedicated liquidity provider programs, RLPs would receive certain economic benefits in exchange for meeting performance obligations; and
• Retail Member Organizations (“RMOs”), which would be eligible to submit Retail Orders to the Exchange.
Member organizations other than RLPs are also permitted to submit Retail Price Improvement Orders. The electronic Retail Liquidity Program requires participants to improve the PBBO by a certain minimum increment, benefiting the retail investor’s execution price.
The related rule filings for NYSE and NYSE MKT listed and UTP traded securities, respectively, can be found here and here.
