BIDS and Big Board brokers

By: Ray Pellecchia

File Under: MatchPoint, NYSE

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There's been some good discussion on Exchanges following Monday's post, NYSE Euronext, BIDS plan joint venture to enhance liquidity and execution quality for block trades, including a comment from my colleague Jim Ross, who heads up MatchPoint for us. I replay the discussion here because I know that many of you subscribe to the blog via RSS or e-mail and often don't catch the comments and Q&A. Hope you enjoy.

If I send a size order to my floor broker can he access BIDS?

Steve.

by steve on October 30, 2007 6:30 PM

With the new Block Trading venture with BIDS will the model compete with MatchPoint for volume? What are some of the differences between the two products?

Thank you.

by Scott Chevalier on October 31, 2007 7:18 AM

Also,

I am afraid this BIDS thing could doom the floor. our floor broker gets size orders now. it is very rare for him to be able to cross any executions as one print above 3,000 shares and instead we get 200 and 300 share executions. On the plus side he does a good job capturing price improvement but he's doing it off the screen at the post and very rarely crosses stock with another floor broker. I think the main reason people use a floor broker is to find undisplayed liquidity which unfortunately is very rarely there. This BIDS thing could be the end of any hope of finding real liquidity on the floor. Unfortunate, because I'm a big fan of it. I realize NYSE is a public company now and must seek ways to get more flow back, damn tradition.

Thanks for the forum Ray!

Steve.

by steve on October 31, 2007 10:31 AM

Ray: Smart move by the exchange. The world needs 40 dark pools like the Pope needs... you get the joke. NYSE is a logical, low-cost place to re-aggregate block-sized liquidity. Good luck and godspeed. JS

by Jamie Selway on October 31, 2007 4:21 PM

Thanks for the questions and comments, all! I'm working on getting a response to the questions. I'm just learning this stuff, too.

by Ray Pellecchia on November 1, 2007 6:17 AM

Exciting news about the NYSE/BIDS JV. This initiative is part of a broader non-displayed liquidity strategy by the NYSE. The key ingredient in all this is the importance of investor choice within the NYSE offering.

BIDS, MatchPoint, SmartPool, NYSE Arca, NYSE "classic" and Euronext are all about addressing the diverse needs of the global investor. And if you look carefully enough, you can see how each complements or enhances (not competes) with the others.

For example, MatchPoint is a point-in-time portfolio-based system. BIDS is a continuous, negotiated (order-driven) system. While both share a "non-displayed," utility theme, they address different fundamental needs for the investor. MatchPoint provides a passive, risk/cash management, benchmark price environment which aggregates multiple orders in time to form informationless block liquidity. BIDS provides a real-time, dynamic environment where order- handling flexibility and information control enhance finding a contraside block.

And NYSE Euronext has several more examples (and more to come!) with NYSE Arca, NYSE Classic and Euronext...investor choice in a centralized, exchange environment. Pretty powerful stuff....

by Jim Ross on November 1, 2007 10:26 AM

To Steve's specific question, I've confirmed that the plan indeed is for floor brokers to have access to this pool of liquidity.

Taking that together with my colleague Jim Ross's comment above, I find this all very interesting. Think about it: if you were to contact your floor broker today, he or she wouldn't have access to this liquidity. It's not in the book or on the floor (so it's not as if it's "going away" from the floor); currently this liquidity is fragmented among disparate dark pools.

If we can re-aggregate these blocks, floor brokers can tap that pool as one part of their job of sourcing liquidity for their customers. That would enable floor brokers to provide more -- not less -- value to customers.

by Ray Pellecchia on November 1, 2007 12:46 PM

Thanks Ray, That is good news! Change...I must learn to embrace it. Good on ya NYSE..Now where's my cheese?

Steve.

by steve on November 1, 2007 8:00 PM

Happy Friday, my friends. At least, I hope it's happier than yesterday's rather unhappy market. Today's historical tidbit:

Today in NYSE History
02 Nov. 1863 --The NYSE purchased property on Broad Street for its first building.