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January 2, 2007

The NYSE Plugs In

By Nina Mehta

The stats are in. Data from the first month of trading under the New York Stock Exchange's "hybrid" methodology leaves little uncertainty about the future of trading on the exchange.

The NYSE launched its hybrid-part manual, part electronic-market in early October. By the end of the month, with 109 stocks phased in, 80 percent of the NYSE's volume in those names had received automatic executions. That's a fourfold increase from the pre-hybrid period.

Colin Clark, vice president of strategic market analysis at NYSE Group, speaking at a recent Keefe, Bruyette & Woods securities brokerage conference, said customers in hybrid securities are now getting better executions and higher fill rates.

Liquidity, measured by the size of the inside market, exceeded an average of 11,300 shares for those securities by the end of October, compared to 8,000 shares before hybrid went live, NYSE data shows. Fill rates in those stocks rose to 80.5 percent, up from 73.5 percent pre-hybrid.

Clark acknowledged that some traders previously saw the NYSE as the last destination to check for an execution because of trading delays and the uncertainty of getting filled at a displayed price. But with the hybrid model and faster executions, Clark said, the "opportunity cost" of missing a trade at the NYSE had increased.

Chris Concannon, executive vice president for transaction services at Nasdaq, observed at the same conference that the hybrid system not only auto-executes "but also auto-complies" with the quote-protection rule in Regulation NMS. That feature also increased Nasdaq's fill rates in October, he said.

The New York plans to complete its hybrid rollout by the end of December.