NYSE Amex to Trade Nasdaq Stocks Early Next Year

Traders Magazine Online News, September 10, 2009

Nina Mehta

NYSE Amex will soon be trading all Nasdaq-listed stocks. The exchange plans to add Nasdaq stocks to the names it trades early in the first quarter of next year. The QQQQs will be included in that list.

As part of this expansion, NYSE Euronext, which operates the Amex market, will have a single designated market maker for every Nasdaq stock. One or more additional market makers, which the exchange operator calls supplemental liquidity providers, will also be assigned to most securities.

"The overall model will be largely consistent with the current Amex market model, which is based on the NYSE model, with some differentiation to reflect the fact that we're not the listing market," said Joe Mecane, executive vice president for U.S. markets at NYSE Euronext. He added that there will, at least initially, be no open and closing auctions for Nasdaq securities on the Amex market. Amex will trade the securities only intraday.

Trading Nasdaq-listed, or so-called Tape C, stocks on Amex will give NYSE Euronext a second execution venue for those names, since NYSE Arca already trades Tape C securities. "Our [Amex] market structure is unique and differentiated compared to more traditional time-priority markets," Mecane said. "There's an opportunity for us to leverage our platform to deliver value to the market and acquire market share in the process." NYSE Euronext owns the New York Stock Exchange, NYSE Arca and NYSE Amex. The exchange operator acquired Amex last year for $260 million.

In Mecane's view, there are several benefits to having a second market trading Nasdaq names. In addition to attracting new participants, the two exchanges' market models are different, with each model appealing to different types of firms. Finally, "there's a benefit to having another [protected] quote out there with a slightly different pricing structure," Mecane said. He added that Tape C pricing on Amex "will probably not be dissimilar from our current NYSE or Amex pricing structures," but declined to comment further.

Mecane expects NYSE Euronext to gain some market share in Tape C names. "It's hard to gauge how much this could impact the marketplace," he said. "I would hope that six months into [our rollout] we would have a couple percentage points of market share [in Tape C names], but we'll have to see."

Last month was the first time in several years that Arca wasn't the second-largest market for Tape C names, behind Nasdaq. Instead, Direct Edge, with 13.2 percent of Tape C volume, pushed past Arca's 12.5 percent. Nasdaq's market share in its listed securities was 30 percent last month, while BATS Exchange had 11.3 percent. These figures come from Barclays Capital data.

"It's a good move for the NYSE and it'll be good for investors to have an additional market destination providing liquidity in Tape C stocks," said Jamil Nazarali, managing director of Knight Equity Markets. "We'll be interested as more details become available. In particular, pricing relative to other venues will be a critical issue for investors."

All Nasdaq stocks will have a designated market maker on the Amex platform. Mecane expects the exchange to have "probably five or six" DMMs for Nasdaq-listed names. The DMMs could include DMMs currently trading on the Amex and NYSE platforms, supplemental liquidity providers currently making markets on the Big Board, as well as other firms. "We're talking to a wide variety of firms, including current DMMs and some potential new DMMs," he said.