Most traders are filling their customers’ orders in New York Stock Exchange-listed securities at the NYSE’s opening price–not Nasdaq’s.
Since last July, Nasdaq also began opening NYSE stocks, but so far has gained less than a 5 percent market share at the opening. So traders, miffed that there are two prices to choose from, are going where the volume is.
“I would say that most people are sticking with the primary opening, which has more volume,” says Mark Madoff, director of trading at Madoff Investment Securities. “More volume will tend to lead to a more efficient and truer opening.”
For its part, Nasdaq was not able to respond prior to deadline.
The NYSE has made huge strides in addressing the latency issues associated with its opening process, says Leonard Amoruso, general council at Knight Capital Group. The wholesaler has noticed how the Big Board has become more electronic and developed more efficient order handling processes over the past several months.
“It still has the lion’s share of the liquidity,” Amoruso says. “We haven’t seen the customer demand for a move away from the NYSE opening.”
The concerns over the dual opening were brought to light by a recent Security Traders Association report on market structure that recommended the NYSE and Nasdaq coordinate their opening processes. The Securities and Exchange Commission has said that the dual-openings haven’t been brought to its attention yet as being a problem.
Some wholesale market makers say they have made this decision while watching the opening process evolve. Many gauge opening prices according to a stock’s primary listing market for morning orders that arrive prior to 9:30 a.m.
Before last summer, when Nasdaq extended its electronic automated auction process to non-Nasdaq names, the primary listing market had always opened trading in its stocks. However, since then, there have usually been two different opening prices in Big Board stocks.
Peter Driscoll, senior equity trader at the Northern Trust Company, suggests the two exchanges find a way to interact prior to the opening that would offset their price imbalances. Driscoll recently chaired a discussion panel on the issue at the STA’s annual Washington, D.C. conference. He serves as the STA’s vice chairman and as a co-chair of its trading issues committee and participated on the STA study released earlier this month that addressed the issue, among others.
On the pro side of the ledger, traders also say the competition presents more opportunities for price improvement. It also obliges the NYSE to keep pace with demands for efficiency and advances in its technology.
The dual openings in NYSE-listed names are a good thing, Driscoll notes, if they spur innovation and efficiency. “It’s a good thing until you have two different opening prices being reported to the tape,” he adds. “And then you’ve got some confusion on the part of investors and portfolio managers as to what should constitute the opening price.”
