Some Helpful (I Hope!) Conversation About Reserve Orders

By: Ray Pellecchia

File Under: NYSE

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On the way home last night, I read an article in the Journal about Heather Armstrong, the "power mom" blogger at Dooce.com whose work is apparently so personal and provocative that someone she thought was a friend "posted a comment saying she 'wanted to punch me in the face because she hated me so much.'" The article says Ms. Armstrong prints out such such vitriolic reactions and "puts them on her driveway and runs over them with her car," which she says makes her life "one thousand percent better."

There must be some interesting PTO meetings in that school district.

Anyway. Reading about her blog (which I checked out and is quite well written and entertaining) made me think quite kindly of your comments, gentle readers of Exchanges. Although you often pine for our old market model, lament not having more price improvement and bemoan tick-by-tick volatility, you have never threatened to punch me in the face Not even my cornball jokes and creaky trivia have driven you to that.

And for that, I thank you, as does my face. Particularly grateful is my nose, which is large enough without any enhancement via fisticuffs.

In fact, more often than not, our readers ask good questions and offer good coments that lead to some valuable (I hope) discussions and exchanges of information. I hope to get back to turning more comments and questions into new posts, so as to boost their visibility and utility to others.

A good example would be the back-and-forth following the recent post about our upcoming new Reserve Orders. I hope replaying it here might be of interest to others who might have missed it:

Not to take away from the big news on reserve orders, but there are some cool photos and videos of Reagan's historic floor visit - http://www.nyse.com/about/history/1173354276796.html
by Danielle Gustafson on March 28, 2008 1:14 PM

And inverted rates for high volume customers to boot! Well done.
by Jamie Selway on March 31, 2008 4:20 PM

Maybe I'm just a bit of a cynic, but this is kind of like a 3rd world country touting how they just got color TV. At this point, reserve orders are not an innovation -- they are something everyone else has been offering for a long time, and NYSE is *finally* catching up. Your systems are still the slowest, so you'll really have to do better if you want to get your market share back.
by Phil Anderer on April 2, 2008 1:31 PM

Phil -- You're correct that these solutions are new only to our market. I do think it's important that we're finally listening to customers and providing these order types, and that's why I'm touting them. You're also right about speed; we're working on that as well.

PS -- Nice moniker. Don't worry, I won't tell your wife.
by Ray Pellecchia on April 2, 2008 4:49 PM

what is the difference between these new reserve orders and what i am seeing now on the dot when orders sit on the book for a few hundred shares or more and continue to fill beyond what is posted.
thanks,
by josh on April 4, 2008 11:39 PM

Josh -- The new Reserve Orders can be entered by any member firm; currently, Reserve Orders in our market can be entered only by specialists and floor brokers.

There are a number of possible explanations of what you describe:

-- Reserve Orders from specialists and brokers;
-- Repeat trades at the quote, due to elected "cap" orders (percentage or go-along orders);
-- Additional interest arriving immediately after an order initially executes;
-- Order partially executes here, and balance gets routed away and executed (wouldn't appear on the tape as an NYSE print, but the customer would get multiple fills beyond the published quote size).

Hope that's of some help. Thanks for writing, Josh.
by Ray Pellecchia on April 8, 2008 11:39 AM

Ray,

Whut a wonderful and semple sit you have! It is the bust site evar!!!!!!!

Has the pilot program started now?

Also, can you explain what this means from Phase 2:

"In addition, floor brokers interested in trading in size will be able to probe this order type on request and in a fully auditable fashion."

This seems to contradict the notion "completely dark" liquidity. How exactly will floor brokers be able to see that reserve size exists? And auditable by whom? ...to what end?

Thanks,

Ian
by Ian Cognito on April 8, 2008 3:43 PM

Ian -- First, LOL -- thanks for picking up on my post about spammish style. Nicely done.

The pilot program has not yet started. We anticipate it will start later this month, and will let you know as soon as we have a definite date.

Sorry our language may be confusing on this. The completely dark orders are not probe-able; it's the Block Reserve version that can be probed.

On the Block Reserve Orders, only the published amount will be visible on the Display Book. If a floor broker looking to trade "size" asks the specialist for a "market look," the specialist can quickly pull up an on-screen template -- the same one used for entering "manual" trades. The template will show aggregated reserve interest, which the specialist can then share verbally with brokers. That feature is designed to facilitate getting block orders executed.

Usage of these looks will be auditable by NYSE Regulation's Market Surveillance group, for regulatory purposes.

We hope that customers who have asked for these types of reserve features will find that the new order types offer them more choice in trading our market.
by Ray Pellecchia on April 9, 2008 11:22 AM

Thanks Ray -- I appreciate the clarification. I'm looking forward to the hidden/reserve orders.

Ian
by Ian Cognito on April 9, 2008 4:07 PM

Hope readers appreciate the beauty of Ian Cognito asking about hidden/reserve orders. : )
by Ray Pellecchia on April 9, 2008 4:35 PM

Even the trivia is getting a reaction, as evidenced by my colleague Danielle's comment above. I mentioned yesterday in a post that I had to look up the historical term "stock jobbers" and even before I did, my friend Bart Ward chimes in with this:

Stock-jobbing is a term with two meanings. In English trading it refers to the legitimate operation of market making, esp. prior Big Bang. The more notorious meaning are people who would ramble through the coffee houses, spreading negative rumors about a company. This was followed by a second canvassing of these houses to buy these shares up once they had fallen because of the bad news rumors. Some coffee houses (i.e. the Tontine Coffee House at 82 Wall) are where stocks were traded prior to the formation of exchanges.
by Bart Ward on April 10, 2008 4:33 PM

We all have a lot to learn from each other. Sharing it here makes the blog go 'round, and seriously, I thank you for that.

Whew. Sorry for the long-winded post. Happy Friday, folks!