FREE email newsletters 
NYSE Readies Its Block Initiative
Traders Magazine Online News, January 9, 2009
The New York Stock Exchange aims to attract blocks and further differentiate itself from its chief rival Nasdaq when it launches New York Block Exchange later this month. The Big Board expects the Securities and Exchange Commission to green-light the NYBX initiative next week.
"NYBX will help us bring blocks back," said Joe Mecane, executive vice president for U.S. markets at NYSE Euronext. "It's part of our block trading strategy, which is an important part of the [NYSE] strategy. Issuers value the fact that we try to foster relative transparency and lower market-impact costs by having a block strategy."
NYBX could halt the NYSE's declining average execution size and cause it to edge back up a bit, according to Mecane. "One of the biggest complaints in the industry and from the buyside is not being able to get size done," he said. "If you create a venue with success in printing larger-size transactions, you get a good feedback loop." However, he acknowledged, it takes a lot of big orders "to move the needle."
Last month, 23 percent of NYSE's volume was executed via blocks of over 10,000 shares. Fifteen to 20 years ago, about half of New York's volume was blocks. The exchange's market share in its own listed names was around 27 percent last month. Several years ago, before Regulation NMS went into effect, it was about 80 percent.
Joe Ricciardi, managing director at Knight Equity Markets, notes that NYBX is on his firm's radar, even as it joins other block crossing venues in a "pretty competitive space." He added: "If the NYSE has a superior product, it'll get traction and we'll use it."
NYBX is essentially a dark pool at the heart of the NYSE. But unlike crossing systems and broker-sponsored dark pools, this venture brings together dark liquidity and the NYSE's deep order book of displayed and reserve, or non-displayed, orders.
Jamie Selway, managing director at broker White Cap Trading, notes that NYBX is different from other block initiatives. "Tapping into the reserve books of exchanges is the Holy Grail of dark pools" because of the latent liquidity they represent, he said. "The NYSE has talked about re-aggregating trades into blocks for years, but this represents a real effort to do so electronically."
NYBX, an electronic facility of NYSE, is a 50-50 joint venture between NYSE and BIDS Holdings, the parent of the BIDS Trading dark pool. (The latter, which is also geared to blocks, is a separate dark pool that currently connects about 40 sellside and 35 buyside firms.) As part of the joint venture, BIDS became a NYSE member and NYSE took an equity stake in BIDS.
NYBX will continuously match and execute orders sent into its facility. Non-displayed orders can be sent into the facility in one of two ways. NYSE member firms and their customers can submit orders to NYBX, and BIDS users can opt to send orders to NYBX in addition to the BIDS dark pool. NYBX orders can include a "minimum triggering volume" to avoid the problem of not getting enough of an order executed. NYBX accepts limit orders and pegging orders, but not market orders.
In seeking contra-side liquidity, the NYBX facility will aggregate displayed liquidity and hidden reserve orders in the New York's display book as well as dark orders from BIDS that have elected to sit in NYBX. NYBX allows executions outside the national best bid or offer, and routes out orders, as necessary, to execute against protected quotes if an NYBX execution would otherwise trade through those quotes.
For more information on related topics, visit the following channels:
