NYSE Launches SLP Program with Goldman Sachs
Traders Magazine Online News, November 18, 2008
The New York Stock Exchange's new program to bring in outside liquidity providers to help shore up its market is live. Goldman Sachs & Co. is the exchange's first broker-dealer member to compete with former specialists by making markets on the NYSE from off the floor. Others in the wings are Spear, Leeds & Kellogg Specialists, a Goldman division, Knight Equity Markets, and, most likely, Barclays Capital.
The NYSE announced its "supplemental liquidity providers" program on October 24, as part of its new market model. This is first time in its history the NYSE has veered toward a multi-dealer structure, even though SLPs are not officially considered market makers. The exchange did not disclose the names of any of the firms that intended to become SLPs, but plans to shortly.
The Big Board launched the SLP program to provide another class of liquidity providers, in addition to designated market makers, who could help to bolster the exchange's liquidity pool and potentially increase its market share. The NYSE has hemorrhaged market share over the last three years as listed volume increased. The NYSE now represents about 25 percent of its own listed volume, down from 80 percent in 2005. NYSE Arca's NYSE-listed market share is around 18 percent.
Goldman expects SLPs to boost price competition at the New York. "SLP quoting will provide more liquidity and should make the NYSE more competitive," said Ed Canaday, a spokesperson for Goldman. "We have begun to see significant shifts in terms of the frequency with which the NYSE is at the NBBO, and we expect increases in volume and market share to follow."
While Goldman is already streaming markets to the NYSE as an SLP, Spear, Leeds & Kellogg and Barclays are getting ready to go live. Both are current DMMs. Canaday confirmed that Goldman and SLK are among the New York's SLPs. Barclays, which has not confirmed that the firm will be an SLP, did not immediately respond to a request for comment.
Knight Equity Markets, the giant market-making division of Knight Capital Group, is also in the process of becoming an SLP. According to Jamil Nazarali, managing director and head of the company's electronic trading group, the NYSE had earlier approached the market-making firm to get their feedback on the SLP program. Knight began exploring NYSE membership after those conversations, and expects to become an exchange member "imminently." Nazarali added that his firm's goal is "to be an SLP in nearly every NYSE stock," although the final decision about that hasn't yet been made.
Joe Mecane, executive vice president and chief administrative officer for U.S. markets at NYSE Euronext, told Traders Magazine that "one SLP is already live and several more are in the process of completing their applications and technology work." He declined to comment on the identity of the SLPs. The NYSE, Mecane said, would release information about the SLP program in the near future.
Ray Pellecchia, a NYSE Euronext spokesperson, said the NYSE was starting the SLP program "in the most liquid stocks." The exchange's October rule proposal to the Securities and Exchange Commission said SLP-eligible securities would initially include 500 of the most actively traded names. The exchange said it would "gradually add more NYSE-listed securities to the program, with the intent of including all NYSE-listed securities."
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