NYSE and NYSE Amex: Best Price and Size in Small-Cap Issues

By: Ray Pellecchia

File Under: Listed Companies, NYSE, NYSE Amex

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From my colleague Steven Poser in our Strategic Market Analysis team:

NYSE Arcavision provided data for the 16-September-2009 article in the Wall Street Journal, which showed that quoted spreads are at their historically narrowest levels in Russell 1000® issues. The article noted that small-cap issues, as measured by the Russell 2000®, have not achieved similar spread narrowing, because high-frequency trading is not as prevalent in small-cap issues. We found a similar result for low-volume versus high-volume stocks, after adjusting for periods with similar volatility, in this Exchanges blog post.

It's worth noting that high-frequency trading or no high-frequency trading, stocks listed on the NYSE and on NYSE Amex have their own designated market makers (DMMs), whose job functions include providing liquidity in issues assigned to them. These obligations are met via depth guidelines, as well as a incentive-based quoting standards to post prices at the best price throughout the trading day.

The NYSE continues to monitor and incent the DMMs to actively provide liquidity in issues across the market capitalization spectrum. New quoting standards added in September are yielding favorable results. In smaller-cap issues, NYSE DMMs provided the best price 48% of the time, and executed 10.1% of NYSE volume in those symbols. NYSE Amex DMMs were at the best price 57% of the time, and accounted for 12.1% of NYSE Amex volume in sub-$500mn market-cap issues.

NYSE and NYSE Amex also trade using a parity model. This means that our DMMs cannot trade ahead of you, just because they are on our floor. Orders on the book share in executions with DMMs and the floor. So you don’t have to be first to get an execution.

The parity model, coupled with DMM responsibilities means there is no better place to send your order for an issue listed on the NYSE or NYSE Amex. Compare our quoted spreads to other exchanges that try to compete with us.

As shown in the tables below, quoted spreads on NYSE and NYSE Amex are much narrower in smaller-cap issues than other exchanges.

Click image to enlarge.