The New York Stock Exchange, a subsidiary of NYSE Euronext (NYX), is moving forward with a revised rule set and advanced trading tools designed to maximize the NYSE’s market quality and competitiveness in today’s increasingly electronic trading environment. The initiatives further distinguish the NYSE from competitors and provide greater value to customers by enhancing the Exchange’s unique market model with new benefits and functionality.
The Securities and Exchange Commission (SEC ) today approved two key initiatives to provide NYSE-listed companies and their investors as well as the trading community with lower price volatility; smaller spreads between best bid and offer; greater price improvement; more active participation by a broader range of market professionals; and overall deeper liquidity.
“Fast, electronic trading is the norm now, and our trading customers are looking for us to go beyond just fast and electronic – to offer something more. They want a market that encourages participants to add liquidity and helps them trade larger orders more efficiently,” said Lawrence Leibowitz, NYSE Euronext’s Group Executive Vice President in charge of U.S. Markets and Global Technology. “The NYSE is providing customers with a unique range of solutions for these challenges -- a rich combination of high-tech and high-touch features that no other market offers. Our listed companies and their investors also stand to benefit from the resulting tighter spreads, lower volatility and higher level of price improvement.”
Specifically, the SEC today approved a next-generation market model filed by the NYSE in June, and a new pilot program unveiled just today to attract new liquidity providers. Implementation of the new initiatives will begin next week and be completed in November.
- Specialists will be transformed into Designated Market Makers (DMMs) who have accountability for providing liquidity, better access to capital and risk-management capabilities, and are on an even playing field with other market participants in terms of trading parity and access to information.
- DMM quotes will be on parity with those of floor brokers and those on the Display Book, encouraging more DMM participation and higher market quality.
- The DMM ’s algorithm will no longer receive a “look” at incoming orders. This ensures that an intermediary will not see orders first, and that DMMs compete as a market participant.
- All market participants will have the opportunity to send a new type of reserve order with a published quantity of “zero.” This order will not be displayed to the DMM . Incoming orders will trade against better-priced dark interest before trading at the published NYSE best price, resulting in greater liquidity.
- DMMs will provide price improvement and match incoming orders based on a new Capital Commitment Schedule, which will be added to the NYSE Display Book and will receive only public information about orders.
- DMMs will have the obligation to maintain an orderly market in their stocks, quote at the national best bid or offer a specified percentage of the time, and facilitate price discovery at the open, close and in periods of significant imbalances.
- Putting the DMM ’s actions directly into the Display Book will further reduce order latency.
- A newly announced pilot program will establish Supplemental Liquidity Providers (SLPs), a new class of upstairs, electronic, high-volume members incented to add liquidity on the NYSE. The program will reward aggressive liquidity suppliers, who will complement and add competition to existing quote providers.
- SLPs will be obligated to maintain a bid or offer at the National Best Bid or Offer (NBBO) in each assigned security at least 5 percent of the trading day.
- The NYSE will pay a financial rebate to the SLP when the SLP posts liquidity in an assigned security that executes against incoming orders. The goal is to generate more quoting activity, leading to tighter spreads and greater liquidity at each price level.
- SLPs will trade only for their proprietary accounts, not for public customers or on an agency basis.
- An NYSE staff committee will assign each SLP a cross section of NYSE-listed securities. Multiple SLPs may be assigned to each issue. The pilot will start with a focus on highly active issues, and gradually expand its coverage.
- A member organization cannot act as a Specialist/Designated Market Maker and SLP in the same security.
- The SLP will have the same publicly available trading information and market data that all other NYSE customers have available to them.
Additional enhancements of the NYSE market model unrelated to today’s approvals by the SEC will be announced as they are implemented.
