• Jul
  • 25
  • 2006
  • 6:10 AM

Big bored

By: Ray Pellecchia
File Under: NYSE

Been doing some needed housekeeping. As you’ve read here, over time, we’ve modified some of the features of the NYSE Hybrid Market to respond to customer input. Sweeps are one example. Changes coming to Liquidity Replenishment Points are another. I’ve been a little less than diligent (OK, a lot less) in digging up my old posts and updating them with the latest, most accurate information and links.

So here and there over the last couple of days, went through the entire blog, searching for outdated info or broken links. Two hundred and thirty-seven posts. One hundred and fifteen comments (including a number of my own, answering questions).

The good news is that I caught some things that needed updating. For the Hybrid 101-type stuff, I revised a number of posts to direct readers into our training booklet pdf. that contains all the Hybrid Training Program chapters, so that you can peruse quickly, and maybe come across some related topics you didn’t even know you were curious about. This is to let you know that as far as I can see, we're all up to date.

The bad news is, after reading all those posts, MAN am I tired of listening to myself talk. Kinda like hearing your own voice on a tape recorder -- I don’t really sound like that, do I? More dialogue or even trialogue would be more informative and entertaining for everyone involved, I'm sure.

The exercise sharpened my appreciation for everyone who has posted a comment or a question. Thank you, bless you, may all your trades be winners, and all of them on the NYSE. Or NYSE Arca, I hasten to add, as an employee and shareholder. And it doubled my desire to hear from more of you.

Would like to think that through our actions on the Hybrid Market project, we’ve shown a desire to listen and respond to customers. From my vantage point, customers appear to be driving this train. On the NYSE trading floor, many times I’ve heard the phrase, “Whaddaya got?” A broker might use it with his assistant, or a specialist might ask it of a broker. Translated: what do you need to do? What’s the order, what’s your bid? In essence: What does the customer want?

All of which is to offer a friendly reminder and invite: I don't look at this space as my space (no disrespect to Mr. Murdoch); it's yours too, and you're welcome to post a question, an observation, a comment. Even the occasional haiku.

Whaddaya got?

Comments

Ray, I heard that the two LRP'S that the Hybrid has now will be merged into one. Can you please explain this. Also is the Hybrid getting rid of the Half-manual/Half-electronic model it was supposed to be based on? What about the Sweep features? is that changing too? I really hope it doesn't become like an ECN. Thanks.

by tony dey on July 25, 2006 10:07 AM

Tony -- We are indeed modifying the sweeps and LRPs. We remain intent on offering customers both automated and manual choices for order execution, and have no intention of becoming an ECN.

We noted here the upcoming changes in sweeps and LRPs. Explanation, by way of excerpts:

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.

More to come soon on the new LRP.

Lastly, on the ECN question, you might be encouraged by the early results of the Lucent pilot, as described here in People still an integral component. Excerpt:

..So even in a penny-spread stock trading tens of millions of shares a day, there are times when sophisticated trading strategies or market situations merit a human "high touch."

This is a preliminary look, an early snapshot, subject to possible change as additional steps are implemented. But as an early indicator, it suggests that the Hybrid Market idea can work -- an affirmation that a blend of automated and human-interaction executions provides value to customers, even in a highly liquid stock.

Hope that answers your questions. Thanks for writing, Tony -- made my morning!

by Ray Pellecchia on July 25, 2006 10:53 AM

Comment on this entry

Forward this entry to a friend