- Dec
- 04
- 2007
- 6:20 AM
It's official: Lehman to form new market-making firm on NYSE floor
- By: Ray Pellecchia
- File Under: NYSE
This had been rumored for some time, but now it's official, according to this news release from NYSE:Lehman Brothers to Form New Market Making Firm on NYSE Trading Floor; Agrees to acquire certain assets related to Van der Moolen Operations, Including Staff and Technology, and Responsibility for 416 NYSE-Listed Issues Excerpt:
"Lehman Brothers is a leader and innovator in global finance whose presence on the trading floor will usher in an exciting new era for the NYSE specialist community and our marketplace," said Duncan L. Niederauer, NYSE Euronext CEO. "The addition of Lehman Brothers will greatly benefit our listed issuers and the investing public, and we will work with Lehman Brothers and Van der Moolen to ensure a smooth and orderly transition process."
Gerald Donini, head of Americas Equities at Lehman Brothers, said, "This transaction underscores our continued commitment to providing a competitive, transparent, public market that allows clients to choose how to best suit their sophisticated needs. Under current NYSE leadership, floor based market making has and will continue to evolve. We look forward to partnering with the Exchange and our clients to continue to improve market quality. We also greatly look forward to working with the floor-based market makers who will soon join our team."Mr. Niederauer added: "Specialists help differentiate the NYSE market, contribute to our superior market quality and liquidity, and are integral in times of unusual market stress and volatility. As we continue to successfully introduce new technology and an updated rule set for specialists with approval of the SEC, we expect the specialist role and their market making capabilities to further evolve."
I'm glad that a strong firm like Lehman is showing its interest in participating in what's happening here, by voting with their feet. I say welcome, good luck, and we're all looking forward to the updated rule set, pending SEC approval of course.
In the meantime, happy Tuesday, and starting tonight, happy Chanukah, my friends. A Financial Flashback, courtesy of WSJ.com:
December 4, 1953 -- New York's newspaper strike is hitting musicians, athletes, plays: Kismet, a musical play, opened last night knowing that there would be no reviews in today's press to tell them whether the show is a hit or a flop.
Opening night, with no press to pan it? Even Max Bialystock didn't think of that one! But didn't Kismet turn out to be a long-running hit anyway?
Comments
RAY
WHAT DO YOU THINK ABOUT TRADING AROUND THE CLOCK
THE FLOOR WILL HAVE ENOUGH PEOPLE.
MAYBE EVEN HIRE SOME OF THE PEOPLE THAT WERE LAID OFF
by TOM on December 4, 2007 12:21 PM
Ray, There is absolutely no liquidity right now on the NYSE. The exchange has to fix this problem ASAP. We need the specialists to get involved and make better markets for your customers. Its possibly the worst i have seen it in my 15+ years as a NYSE customer. Please listen to your customers who trade on your exchange. Thank you.
by tony dey on December 4, 2007 3:40 PM
Tony Dey,
The SEC dosen't care about liquidity, all they wanted was speed. so now your order is done in a nano second. thanks to reg NMS and the SEC the public is hurt. Give the specialist more control not less and liquidity comes back...
by Tom on December 4, 2007 7:08 PM
Tom,
No way! People need to be able to go home at night, enjoy their families and digest the day's information in order to fight another day. Also it would become too costly for all the firms on wall street to staff their desks 24 hours a day for the 5% of the people That might want to trade that late.
Tom, Though I disagree, this has been brought up alot in the past especially at the end of Dick Grasso's term and at the beinning of John Thain's, so you never know...
Steve.
by steve on December 4, 2007 11:50 PM
I agree 100% with Steve. In fact, if there's not going to be a floor, let's cut hours!
The middle of the day is slow anyway. Perhaps if they took 2 hours out it would force more liquidity into the trade.
-DT
by Dinosaur Trader on December 5, 2007 10:35 AM
If ETFs are migrating to NYSE Arca, why aren't listed companies?
What are the differences between how ETFs trade and companies? So many ETFs have xferred their listing to NYSE Arca, and it's puzzling to understand what advantages ETFs have to list on NYSE Arca that companies don't.
Could you pls help me make sense of this?
by Bibbster on December 5, 2007 3:26 PM
The reason that ETFs have migrated to ARCA is they trade off of a net asset value. You can stream in electronic quoting aound that fair value. It's thicker and faster on the ECNs. Stocks don't have fair values, so the full electronic mode of trading will never work perfectly for stocks. you need a human touch
by Bob on December 6, 2007 12:17 PM
Bob,
Thanks for your answer. That sheds some light, and raises another question:
Arca is taking share from NYSE in listed stocks -- and Nasdaq (including the Island ECN) is also taking share from NYSE.
Does this suggest that in spite of companies not having a "fair value", ECNs offer greater speed and thereby better trading quality?
Nasdaq doesn't really offer the human touch, yet they've been getting order flow at the expense of the big board. If the human touch is value-add, why are the humans and orders leaving the floor?
Thank you.
by Bibbster on December 7, 2007 9:17 AM
Bibbster, the simple reason is REG NMS which forces speed at the expense of price...in terms of executions. Also remember that the ecn's are paying for order flow in terms of liquidity rebates for posting limit orders. order flow has become fractured, going to the highest bidder, so to speak. It has increased volatility and made execution quality poor. So the answer is yes they are faster, but they do not deliver better execution quality. for that you need a specialist
by bob on December 9, 2007 6:36 PM
Ray, Can you please tell me when the specialists or (primary market makers) will start getting back in the game? seems like there are a lot of changes going on right now and the liquidity on the NYSE is suffering. Thanks.
by tony dey on December 10, 2007 7:17 PM
Bob,
Thank you for your feedback. A couple of things:
Doesn't NMS mandate that orders get executed at the best price (no matter what market it's on). If that's the case, could you explain how speed takes priority over price?
Seems like a very expensive (in terms of opportunity costs and hard costs) model to try to keep a system in place that enhances execution quality for the small amount of orders where quality matters
According to this past weekend's Barrons, specialists are involved in only 6% of nyse trades. Isn't that a small number of trading to focus an entire market model on?
by Bibbster on December 11, 2007 9:17 AM
Tony -- Sorry, my friend, I don't have any news on that front. I, too, am watching for it.
by Ray Pellecchia on December 11, 2007 2:20 PM
Bibbster,
If you understand Reg NMS, you know about rule 611 (the order protection rule) and the various exemptions to it. The best price thing is kind of deceiving because there is no mandate on size. You just need to satisfy what's displayed, which can be for as little as 100 shares. Trust me when I tell you that the specialists would prefer to be participating on more than 6%. You as an investor would rather they participate too. That 6% number is also deceiving because the high volume stocks have minimal involvement and they carry a higher weight in figuring that statistic. I'm sure they participate more in the less liquid stuff.
by bob on December 12, 2007 8:32 AM
Bob: Actually, specialist participation rate has fallen more substantially in less liquid names since trading has gone electronic. Intuitively, this makes perfect sense -- less liquid names are tougher to trade, hence riskier places to commit capital, and specialist firms have been losing money. I'm happy to email you some data if you'd like. JS
by Jamie Selway on December 12, 2007 8:00 PM
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