• Sep
  • 30
  • 2006
  • 2:47 PM

Market as classroom: Saturday school

By: Ray Pellecchia
File Under: NYSE

Spent my Saturday morning on the trading floor, watching the Hybrid Market training exercise. First, here's the news release: NYSE Conducts Saturday Hybrid Market(SM) Phase III Training Exercise

Excerpt:

Today, the New York Stock Exchange successfully conducted a market-wide training exercise involving floor brokers, specialists and other market participants in preparation for the Phase III launch of the NYSE Hybrid MarketSM on Friday, Oct. 6, 2006. The Saturday training exercise, which involved full-scale functional testing through simulated Hybrid Market trading in NYSE-listed stocks, produced valuable information and experience for the Exchange, its members and member firms prior to the Phase III launch.

On Oct. 6, Phase III full Hybrid Market trading will begin with two NYSE-listed securities, followed by a gradual roll-out of all NYSE-listed securities through Dec. 2006.

Here's what I saw:

• 2,000 bagels and 1,500 doughnuts and whoknowshowmany muffins, most of which found a happy home. Your humble blogger himself is still working off that sugar OD.

• About 6 billion shares executed in two hours. Not bad for 120 minutes on a Saturday morning. Realistic for the near future? You can't judge that by a training exercise. Today some stocks were getting hit with million-share market orders, which you could send today to test things out, but probably wouldn't want to do in real life.

• About 2,500 people, wearing everything that's banned during official hours (baseball caps, shorts, sandals, high-tops, Giants jerseys and Mets shirts, the latter of which should never be allowed, training or no training. Anne.) Anyway, people were able to go a little Chicago Merc for a day.

• Millions of orders coming in from 90 upstairs firms, and people on the trading floor seeing if their own electronic tools were interacting with them as planned, and working on figuring it out when they weren't. Thousands of auto-executions flying back and forth.

• One broker telling another the ins and outs of Discretionary e-Quotes. A specialist making sure his crowd sees the impact of a Liquidity Replenishment Point in one of his stocks. Questions and answers flying back and forth at the help desks, and between traders and supervisors in the crowds. People earnestly working on getting it, and helping others get it.

• Some people who are completely proficient with the new tools; some who know what they need to do, know how to do it, and were just trying to get the hang of actually doing it; and others who need more training.

• In short, everything I expected to see at a Hybrid Market training exercise. And don't reach for those diplomas yet, folks. More Hybrid School to come.

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Comments

What does the phased rollout look like besides the first stock next friday and complete rollout by Dec? Are you planning on adding 100 a week or what?

So with the exception of large order imbalances, what will the specialist be doing through the day? To me it seemed pretty apparent that everything else is auto executable.

I personally do not like that markets now go off at Direct+. I'll just have to send my orders to auction to try to get price discovery.

I do agree with Don Bright about the liquidity providers. There is no reason to provide liquidity on nys when you will just get walked over.

It will be really interesting to see how this all effects trading during a normal day.

Thanks for a great blog,

-Jon

by Jon on September 30, 2006 3:32 PM

We will likely start with a couple of stocks, followed by a stock or two at each of specialist firm; stocks at each specialist post; then larger groups of stocks. More on this soon.


Many orders will indeed be auto executABLE, but that doesn't necessarily mean they will be auto executED. We have said from the beginning that most stocks don't have the liquidity to be automatically executed most of the time. This also applies to even liquid stocks in some situations. Specialists and floor brokers will be busy adjusting their electronic tools to interact with incoming electronic orders, AND participating in the physical auction on the trading floor.

Your choosing to send your orders into the auction is your prerogative, and consistent with the concept of customer choice that we've built into the Hybrid Market. But also consider that even the interaction of electronic orders can contribute to price discovery. And if you're actually talking about price improvement, there are ways to get price-improved electronically; see this earlier post: More ways for liquidity providers to get price improvement.

You could get "walked over" in any market; you have to stay on top of your limit orders to avoid that. On NYSE, you have the best chance of benefiting from auction pricing.

I agree with you that this will be interesting to see. You might have guessed this, but I'm bullish.

Questions like yours are what make it go, Jon. Thanks for writing.

by Ray Pellecchia on October 3, 2006 8:34 AM

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