Tag Archives: electronic exchanges

NYSE Snafu Causes Market Structure Experts to Flip-Flop

MarketsMuse senior editors have quickly canvassed a broad assortment of “market structure experts” and industry talking heads who have been at the forefront of debating the pros and cons of market electronification, multiple market centers and the underlying issue: “Is Market Fragmentation Good, Bad or Ugly?”

For those who might have just landed on Planet Earth, the debate (which is ongoing via industry outlets such as TabbForum, MarketsMedia, and most others) boils down to whether multiple, competing electronic exchange systems enhance overall market liquidity and make it ‘easier and better’ for institutions and retail investors to execute ‘anywhere/anytime’ via the now nearly two dozen “ECNs”, “Dark Pools” that offer a Chinese menu of rebates, kickbacks and assorted maker-taker fee schemes (e.g. ARCA, BATS etc), or whether someone should try to shove the Genie back into the bottle and revert to the days of yore when the NYSE was the dominant listing and trading center for top company shares, and complemented by a select, handful of regional stock exchanges, most notably, The MidWest Stock Exchange, The American Stock Exchange, The Philadelphia Stock and the Cincinnati Stock Exchange.

Despite the fact that CNBC talking heads dedicated the entire day’s coverage to the NYSE snafu with rampant speculation as to whether the day’s outage was due to a cyber attack by the Chinese in their effort to distract the world from the dramatic drop in China-listed shares, whether it was a Russia-based malware attack, or perhaps even an ISIS-born cyber-terrorist attack that also impacted United Airlines)–the fact of the matter (one that CNBC seemed oblivious to) is that those who wanted to execute stock trades through their brokers were able to do so without disruption, simply because those brokers routed orders to a drop down menu of exchanges that compete with the NYSE..

Yes, the NYSE lost a day’s worth of fees attached to every order they typically execute on a normal day (not a good day for exchange President Tom Farley)–but more than half of the market structure experts who have continued to campaign against market fragmentation have [temporarily] flip-flopped today and have acknowledged that were it not for multiple competing exchanges, today would have been a real headache for US stock market investors and brokers. No doubt CNBC and others who were fixated on this outage will be able to turn their attention back to what is taking place in Greece, China and other topics that actually do impact the price of global equities.

Follow-On: Major Exchange Slug Fest in Battle for ETFs

tradersmag Courtesy of Tom Steinert-Threlkeld

Nasdaq, NYSE and BATS are slugging it out with incentives, new order types and a new exchange to resuscitate trading in ETFs…

Once it worked. Now, not so much.

For years, the Nasdaq Stock Market designated a single market maker for each exchange-traded product. Later, the BATS Exchange treated exchanged-traded products no differently than other equities. No special treatment for trading in ETFs.

Meanwhile, NYSE Arca created lead market makers and gave them premium rebates for trading in exchange-traded funds, and gave other market makers rebates as well.

Both models worked fine, as institutional and retail investors pulled out of mutual funds that invested in stocks and rushed in droves into exchange-traded funds that also held baskets of stocks-and could be traded like them, too.

Only about 82 million shares of ETFs were traded in an average day in 2004, accounting for 2.15 percent of consolidated volume. By 2008-at the height of the credit crisis-that had surged to 1.1 billion shares and 12.5 percent of all trading. By 2011, the 1.2 billion shares traded every day in exchange-traded products of all kinds accounted for 15.4 percent of all trading.

Then, the hammer dropped. Daily volume fell 22.0 percent last year, to 941,000 shares a day. And the share of trading went down to 14.3 percent, by Rosenblatt Securities’ count.

The bloom was off the boom-even as investors keep pouring money into the funds, adding another $16.6 billion into North American ETFs in the first quarter of 2013, with $1.4 trillion invested all told in ETFs, in the United States.

“Investing in ETFs is continuing to increase. It’s just happening in places other than the secondary markets, like NYSE Arca or Nasdaq or BATS,” said Laura Morrison, senior vice president for global indices and exchange-traded products at NYSE Euronext.

For the full article courtesy of TradersMagazine, please click here