The Hybrid, it is a-changin'

By: Ray Pellecchia

File Under: NYSE, NYSE

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Our latest Hybrid 101 installment announces a couple of changes involving sweeps and Liquidity Replenishment Points. (Unfortunately, none of the changes involves renaming the LRPs.) As the master said, the wheel's still in spin.

Excerpts:

NYSE Hybrid Sweeps

The current design for the execution of a marketable order beyond the best bid or offer was to allow the order to automatically execute beyond that point and to “sweep” to a clean-up price. This automated “sweep” was designed to replicate the experience that block trades have on the trading floor with an execution at the inside and then a sweep up or down to the “clean-up price”.

Customers would also be provided the choice to send individual orders to price points that they may have seen on NYSE OpenBook®.

While customers applauded the concept of rewarding “liquidity providers” through the sweep design, many indicated they would not use the functionality, but would rather simply “walk the book” and trade at each price point. Rather than build a product that is not responsive to customer needs, the NYSE is redesigning the Hybrid Market sweep.

Instead of the clean-up price execution, marketable orders will execute at each price point in one continuous transaction until the order is completed or a liquidity replenishment point is reached.

With this change, customers will not have to send individual orders at each price point. Instead they will have the choice of sending individual orders or sending one order that is marketable beyond the best bid or offer. Sweeps will execute automatically at each price point taking into consideration all posted liquidity, reserve liquidity, Convert and Parity (CAP) liquidity, destabilizing immediate or cancel, and specialist liquidity at each price point.

Customers may execute their order at a better price than intended because of additional liquidity at each price point, which will be available to participate within this new design.

. . .

Liquidity Replenishment Points (LRPs)

The change to the sweep design noted above also allows for the simplification of the LRPs. As previously noted, there are currently two LRPs, the Sweep LRP and the Momentum LRP.

The NYSE will simplify the current design by merging the two LRPs into one more simplified approach. The concept will generally be the same in that the system will calculate an LRP based upon the last trade, and publish it.

At this time, the NYSE is finalizing the components of the new LRP and will describe them in more detail in a follow-up communication.