- Aug
- 30
- 2006
- 6:04 AM
More ways for liquidity providers to get price improvement
- By: Ray Pellecchia
- File Under: NYSE
In Q&A: About liquidity providers -- day traders and Abbie Hoffman, I wrote:
The floor broker, as agent for larger institutional orders that frequently trade in Rule 127 fashion (in which a sweep-price execution is still possible) will still be able to provide price-improvement opportunities to resting limit orders entered by liquidity providers.
An HBC e-mailed me that there are other electronic ways for liquidity providers to get price improvement:
• One is the Discretionary e-Quote, which is basically an electronic manifestation of what the brokers can do manually in the crowd. The Discretionary e-Quote is pending SEC approval; some background about it is in our Hybrid Training Program booklet, Chapter 25, here.
• The other is via the specialist's use of algorithmic messages, subject to certain restrictions. Our training booklet has a chapter about that as well, Chapter 15, here.
Comments
With 500 or more traders, many of whom provide liquidity on the NYSE because we receive price improvement...we are very concerned about the sweeping of the book. As of this time, we are advising our traders to seek other locations for resting their orders.
This combined with the new charges forced upon us by the NYSE makes it so we will be trading our shares on ECN's.
Something has got to change.
Don Bright
Bright Trading, LLC
donbright@brighttrading.net
by Don Bright on August 31, 2006 12:08 PM
Mr. Bright -- Thanks for writing. I appreciate your candor.
In the full Hybrid Market, floor brokers will provide execution opportunities through their Discretionary e-Quote function via their hand-held device. That capability will provide orders that may have set a new bid or offer with the opportunity to trade immediately without becoming the new best bid or offer.
In addition, orders that are supplying liquidity will also have the opportunity of price improvement through auction- style sweeps initiated from the trading floor, in which the sweep includes an execution at the inside price and then an execution at the clean-up price. Orders residing on the book for these block trades will receive the clean-up price, and thus price improvement. So not posting on NYSE could result in missed opportunity.
Only in the case of electronic sweeps were changes made to the execution rationale. In those cases the sweep will "walk the book" at each price point. While that is a change from our initial proposal, it is responsive to customers who indicated that they would prefer the way that sweeps are handled in other markets. So we will be like those other markets on electronic sweeps, with the difference being our auction component.
On the fee issue, our goal with our recent, initial fee changes was to make our fees more transparent, simplified and equitable across our customer base. We've noted publicly that our fee structure will continue to evolve, and of course we want to encourage the provision of liquidity. We will take your input into account.
I know I'm a bit biased on this, but I suggest patience. You haven't experienced the full Hybrid Market yet; I encourage you to try it out before making a decision.
Tags: [New York Stock Exchange, Hybrid Market, NYSE, NYX, NASDAQ, NASDAQ
by Ray Pellecchia on September 5, 2006 11:02 AM
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