NYSE to offer incentive for floor brokers to add liquidity

By: Ray Pellecchia

File Under: NYSE

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NYSE has just filed a change in our fees that will provide floor brokers with a credit when they add liquidity. Excerpt:

The Exchange proposes to amend its equity transaction fees, for implementation on March 1, 2008.

Member organizations will receive a $.0004 per share credit for execution of orders sent directly to the floor broker for representation on the NYSE when adding liquidity to the NYSE Display Book system (including Percentage Orders).(2)

Technological limitations(3) make it impossible for floor brokers to post orders on other markets while at the point of sale on the Exchange. Therefore, unlike other Exchange users, they are unable to benefit from the incentives certain other markets provide to customers who provide liquidity. The time that would elapse if a floor broker sent the order to his booth or upstairs trading desk for execution on another market means that, if the floor broker utilized this alternative, the trade would likely not get executed at the desired price. The Exchange believes this disparity places floor brokers at a competitive disadvantage to other Exchange customers and believes that the proposed credit will mitigate the effects of that disadvantage while also attracting additional liquidity to the Exchange.

The Exchange believes the credit is justified because of the importance of the floor brokers to the continuation of the floor as an integral part of the Exchange’s market model. The Exchange’s market model integrates the auction market with automated trading. Essential to this model is the interaction between the specialists, floor brokers and orders in the Display Book system, which creates opportunities for price improvement, provides information about changing market conditions and serves as a catalyst to trading. The Exchange believes that this incentive will allow floor brokers to remain competitive.

(2) An order adds liquidity to the market if it is posted on the book for execution against incoming orders on the contra side. Generally, Exchange customers are able to send their orders to other markets to avail themselves of incentives those markets provide to customers who provide liquidity. Floor brokers add liquidity to the market by posting orders either as eQuotes or as DOT or Percentage Orders. Non-electronic trades on the Exchange floor do not add liquidity to the book and are either charged a fee of $.0004 per share (if they are non-electronic agency transactions of less than 10,000 shares between brokers in the crowd) or are free (if they are non-electronic trades of 10,000 shares or more).

(3) The Exchange’s order management system on the floor, the Broker Booth Support System® (BBSS), is not configured to route orders away from the floor to another market.

This is another in a series of steps to enhance the value of our market. Again, there's more to come. Will keep you posted. Hope this one will be of help to our brokers, from a perspective of competing, adding liquidity to the market, and providing a valuable service to customers -- actually they're all intertwined.

Happy Friday, my friends. Unless you're long, it seems at the moment. Hey, just remember, things can always change. Consider how different things are today from not so long ago:

Financial Flashback (WSJ.com)
February 29, 2000 -- The euro's oft-cited "potential to appreciate" is becoming more of a joke than a mantra. The only thing appreciating Monday was sales volume, as "panic selling" sent Europe's single currency to an all-time low.