ESE: 'Earth Securities Exchange'

By: Ray Pellecchia

File Under: NYSE

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A couple of items from the HybridTalk newswire, for your consideration:

1) NYSE: Earth's Securities Exchange? (Motley Fool, Oct. 30) -- This article deals mostly with NYSE Group's merger plans, but I'm going to stick to my knitting and highlight the part about the NYSE Hybrid Market. Excerpt:

As the NYSE commented on its results call, the Hybrid is slower than Nasdaq's Instinet system and even the NYSE's own Archipelago platform. That raises the question of why the Archipelago platform wasn't used, and the likely answer is that Archipelago was designed for full automation, which would preclude specialist participation in a trade. Those genes again!

Yet even a successful technology implementation of the Hybrid is likely to diminish the specialist role. The most probable outcome is fully automated trading of large, liquid stocks, with specialist participation in small, illiquid stocks. And this is the optimistic scenario. The pessimistic one involves the NYSE losing market share because its compromise Hybrid system loses out to faster trading systems at the Nasdaq (Nasdaq: NDAQ) and other competitors.

Your humble blogger's take on this:

a) We've been pretty clear from the beginning about why we built a Hybrid Market instead of "using Archipelago." From our FAQ:

Why didn’t the NYSE use the Archipelago platform for automated trading?
The NYSE has a highly sophisticated and robust trading platform that is best suited to support the rich diversity of trade-execution choices and information flows that comprise the NYSE Hybrid Market. The NYSE’s platform includes a broad range of technology tools that help specialists and brokers continue to provide value to customers. The NYSE Group’s plan is to retain the distinct value of both the NYSE and NYSE Arca marketplaces. Eventually the infrastructure supporting the trading platforms will be consolidated to provide operating efficiencies while retaining the value-added functionalities of each market place.

A little wordy, maybe, but you get the picture. The different markets were created for different things.

b) Let's catch our breath here. Hybrid Market speed is sub-second. To date, our customers are extremely happy with that. The issue of measuring markets by milliseconds makes for great debate and speculation, but to me, what counts most is being a "fast market," so that your best prices are not traded through in a Reg. NMS environment. NYSE creates the best price far more than the competition does, and we'll be "fast" the vast majority of the time. I think those are important things to consider in this discussion.

2) Misgivings on the Rise of the Dow (New York Times, Oct. 28) -- This article discusses the record high for the Dow Jones Industrial Average, and what it means. My favorite part of the piece, naturally, is this:

OTHER analysts do not share these misgivings. Louise Yamada, head of Louise Yamada Technical Research Advisors, said recent market action suggested that enough demand for stocks existed to keep pushing prices higher.

She noted that the broadly based but not broadly followed New York Stock Exchange composite index joined in a new high. And where others see myriad indexes failing to confirm the Dow’s record, her take on recent market action is that “it’s the Dow confirming the other indexes’ behavior of the past year-plus.”

Thank you, Louise Yamada. Not everyone thinks to include the NYA in the Dow discussion, but it surely belongs. Broadly based? The NYSE Composite surely is. Broadly followed? Not yet, but working on it.

Tags: New York Stock Exchange, Hybrid Market, NYSE, NYX,
trading, stock market, New York Times, Motley Fool, NYSE Composite Index, NYA