Commentary

Elaine Wah

Modern Markets, Modern Metrics - A Blog By IEX

In this blog by IEX's Elaine Wah, the newest public exchange looks to refute public claims that the metrics it uses are designed to inflate its own volume numbers and mislead people.

Traders Poll

Do you think it's a good idea to conduct an access fee pilot to assess the pricing models used by many trading venues?

Yes

67%

No

0%

Should have had a pilot program a long time ago.

33%

Free Site Registration

August 9, 2006

Nasdaq Voices Concerns Over NYSE's Lucent Pilot

By Peter Chapman

The New York Stock Exchange's first step into hybrid trading has come under fire by a rival and customer.

A top Nasdaq official suggested the Big Board specialist in charge of trading Lucent Technologies might be purposely suppressing limit orders in the stock. Lucent is the first stock to be traded in the Big Board's hybrid manual-electronic environment.

Chris Concannon, a Nasdaq executive vice president, told an industry gathering that many of the limit orders in Lucent that Nasdaq sends to the New York are not being represented on the book.

That's because the specialist-LaBranche & Co-is delaying the display of public limit orders by posting its own 100-share quotes, Concannon suggested. And that turns off the NYSE's Direct+ auto-ex mechanism.

"We are trying to understand how long these limit orders are actually sitting out there not being displayed," Concannon told attendees at a recent Securities Industry Association market structure conference. "We are troubled by this early phase."

Nasdaq is a rival of the New York, but also a large customer. Its Brut broker-dealer subsidiary is the second largest trader on the Big Board, according to the New York. On a recent day in June, for example, Brut accounted for about 8 percent of all NYSE trades.

When the Lucent pilot began in May, NYSE Regulation warned specialists not to repeatedly disseminate manual 100-share-by-100-share markets.

Doing so could prevent the display of a public limit order and is a violation of the rules of the exchange and the Securities and Exchange Commission, NYSE Regulation noted.

There are exceptions to the rule. A specialist can delay the display of limit orders on the Display Book when he needs time to print certain trades.

A Big Board spokesperson says that only a tiny minority of Lucent quotes equal 100 shares on any given day. And of those 100-share quotes, the vast majority are "system generated." In other words, the specialist posts 100-share quotes very rarely, the spokesperson said.