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Review of Quantitative Finance and Accounting

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01.07.2009 | Original Research

NYSE execution quality subsequent to migration to hybrid

verfasst von: Jose A. Gutierrez, Yiuman Tse

Erschienen in: Review of Quantitative Finance and Accounting | Ausgabe 1/2009

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Abstract

In October 2006, the NYSE began rolling-out phase three of a four-phase plan initiate its new Hybrid trading mechanism. The results show that this new trading platform introduced a much larger proportion of electronic transactions relative to floor auction transactions. This migration to electronic transactions is further evidenced by a mirror shift in price discovery from floor trades to trades marked for automatic electronic execution. In addition, the move to Hybrid trading introduced a significant decrease in inventory control costs, as well as a noticeable increase in trade persistence. Finally, the new trading platform has increased the speed with which orders are met, and has also decreased the proportion of executed shares which receive price improvement.

Vorheriger Artikel Implications of firm experiential knowledge and sequential FDI on performance of Japanese subsidiaries in Brazil

Nächster Artikel Recap of the 19th annual conference on financial economics and accounting, November 14, 2008 to November 15, 2008

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Note that categories are determined by order size, while the share weighting is based on executed shares. For example, an order for 3,000 shares might execute in two equal parts, each part with a different execution result. The results would be weighted by the shares executed and reported in Group 3 even though it executed in two parts each of which would be classified by Group 2. The purpose is to represent the expected execution results for the order submitted.

The combination of the best bid and the best offer across all quotes is referred to as the National Best Bid and Offer (NBBO). This is the quote that is used to benchmark Dash5 data. Unless otherwise indicated, any reference to quoted spreads means the NBBO.

Under the Dash5 data, execution prices are compared to the prevailing NBBO at the time order arrival, and execution times are also calculated with respect to order arrival times. The TAQ data do not provide information on order arrival times. Hence execution quality is often calculated by comparing the execution price to the quote at the time of execution (rather than the time of arrival). The order arrival benchmark is more appropriate than an execution time benchmark because the effective spread will reflect any price movements that occur while an order is being executed. These price movements reflect real costs to traders and may differ across market centers.

It should be noted that the results for market orders are easier to interpret than those for marketable limit orders. The reasons for this are twofold. First, the Dash5 reports do not include information on the opportunity cost of non-execution. As a result, ex post execution costs for marketable limits will understate their true cost. Second, the time-to-execution for this order type is censored, because expired and cancelled orders are not considered in the calculation.

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Titel: NYSE execution quality subsequent to migration to hybrid
verfasst von: Jose A. Gutierrez
Yiuman Tse
Publikationsdatum: 01.07.2009
Verlag: Springer US
Erschienen in: Review of Quantitative Finance and Accounting / Ausgabe 1/2009
Print ISSN: 0924-865X
Elektronische ISSN: 1573-7179
DOI: https://doi.org/10.1007/s11156-008-0101-z

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