Will ECNs make the Hybrid Market obsolete? Not!

By: Ray Pellecchia

File Under: NYSE

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It would seem that the market is really asking for a completely electronic system like that of Archipelago's. Witness the growth of Island and Archipelago these last few years. As such, won't Arca's listed trading system make the Hybrid trading obsolete in a few short years? -- Bob

Bob -- As we noted in our latest post, some of our customers are looking to trade automatically and anonymously, and that's why we're adding that choice. But does that mean throwing the rest overboard? Consider:

· Even the most liquid stocks, we believe, will sometimes benefit from the injection of liquidity and human judgment at the point of sale that our trading floor provides, particularly in times of market stress and price dislocation as well as at the open and close.

· We also expect that the majority of our stocks will continue to depend on the mix of auction and automated trading that the Hybrid provides.

· Hybrid markets have worked well elsewhere, most notably at the Chicago Mercantile Exchange and the Chicago Board Options Exchange, where some contracts trade mostly electronically, others largely in the pits, and many with a blend of the two.

You referenced Island and Archipelago, and it's worth noting that those markets have deeply penetrated the Nasdaq market, not the NYSE's. The NYSE’s automatic-trading system, NYSE Direct+®, by itself executes approximately triple the volume that Archipelago does in NYSE-listed stocks.

Our customers don't need us to become just another ECN; there are already plenty of all-electronic choices. Our customers value the NYSE auction's ability to produce best price, low volatility and deep, liquid markets, and just want the ability to access those benefits automatically. Our commitment is to offer a range of choices that blend the best of the auction and automated, and let customers choose how they wish to access the market. We think that model will be the most compelling of any competitor in our space.