• Nov
  • 10
  • 2009
  • 1:38 PM

NYSE Arca: The Home of Market Order Price Improvement

By: Ray Pellecchia
File Under: NYSE Arca

From Steven Poser in Strategic Analysis and Statistics:

NYSE Arca offers higher price improvement for market orders than other venues, as shown in the table below:

NYSE Arca’s proprietary market order algorithm, attractive rebates for posting liquidity, in combination with market order interaction with two special order types, differentiates NYSE Arca from other markets. The Mid-Point Passive Liquidity (MPL) and Post No Preference Blind (PNP B) order types on NYSE Arca allow liquidity providers to offer dark liquidity that is aggressively priced, inside the NBBO. Market orders will execute against these orders, resulting in approximately 22% of net shares receiving price improvement of market order volume.

The MPL order is an undisplayed limit order that is priced at the midpoint of the Protected Best Bid and Offer (PBBO). MPL orders generally interact with all order types including contra MPLs excluding: cross or directed orders. MPL orders will be entered as a limit order, but are executable only at the midpoint of the NBBO. When the market is locked, eligible MPLs will trade at the locked price. MPLs have a minimum entry and execution size of 100 shares.

The PNP B order is an undisplayed limit order priced at or through the Protected Best Bid and Offer (PBBO), with a tradable price set at the contra side of the PBBO. When the PBBO moves away from the price of the PNP B and the prices continue to overlap, the limit price of the PNP B will remain undisplayed and its tradable price will be adjusted to the contra side of the PBBO.  When the PBBO moves away from the price of the PNP B, and the prices no longer overlap, the PNP B shall convert to a displayed PNP limit order.

(Additionally, most NYSE Arca listed products have a Lead Market Maker, who is required to quote both sides of the market at all times with a minimum spread. Some 95% of all U.S. Exchange Traded Products are listed on NYSE Arca.)

Comments

PRICE IMPROVEMENT???

I have officially seen it all

by jt on November 11, 2009 11:04 AM

I'm curious to see what people's response to my question will be.

When a stock moves up or down, should there be some sort of recognizable pattern or order flow while that stock is moving or should the stock just move without being able to see why?

The reason why I am asking this question is that the way stocks move now, they look exactly the same when they move .05 or 5$. When you look at the prints all you can see are 100 share prints and quotes that just change price.

I know this fustrates me as a trader but i just wanted to get a feel if this is what the exchanges or hedgefunds or mutual funds are looking for.

Is it right that a stocks can move very little or a ton and there really is nothing different to see except the change in price?

Thanks,

by josh on November 12, 2009 4:00 PM

its a joke...this is not a stock market anymore...seems like its 5 huge players trading amongst themselves that decide when/where/and how ANY stock will trade, and us little guys...i guess we deal with it. Frustrating? You better believe it. Worst part nothing gets done. I have been asking/calling/pleading/begging, some version of josh's Q for the past 2 years...gets worse daily. Rip a stock a buck then body slam it .90----nice mkt. Its unfortunate the our voices are not heard. We prob do not trade enough shares, provide enough liquidity, or rub elbows with the right people. Hopefully something will change soon.

j

by jt on November 13, 2009 10:30 AM

also dont know if you can use specific stocks as an example...but i have a question.

what happened with 'xyz' this morning around 940 am just after it opened? Was trading 31.90 a large offer was lifted 6 seconds later...traded 42.00????

by jt on November 13, 2009 1:31 PM

Obviously it has become a total black box trading Mkt. All black box driven that only really benefits a very few. I really hope that something changes, not just for the people who do this for a living but for all investors as a whole. The way the trading markets work now do not produce the desired results for which it was created IMO. You can actually track the level of REAL volume decline as more and more of the current changes took place. Add to that, the level of good paying jobs also declined right along with the same changes. No matter what side of this coin your on, how can this be a good thing? Some will say, "hey thats innovation, or whatever" I disagree. You can still improve the over-all system yet maintain a STABLE, modern trading market. Bring depth and stability, this will create volume, profits, jobs, and then the NYSE will return to the worlds premier trading venue. I am fustrated, along with the others who post here. I truely believe that many at the NYSE actually do see the current problems and want to change it but cant seem to get it going. Lets hope that "Change" will eventually happen here in 2010. Hopefully someone is reading that can fix this. - Thanks.

by tony dey on November 15, 2009 8:06 PM

any chance for an answer?

by jt on November 19, 2009 10:14 AM

JT -- I can't field inquiries on specific trading situations. If you want to ask or complain about what happened, here is the link to ask our regulatory folks to look into it:

http://www.nyse.com/regulation/complaintsinquiries/1088808969148.html

by Ray Pellecchia on November 19, 2009 2:19 PM

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