NYSE Is Fastest in Turnaround for Illiquid Names, Study Finds

The New York Stock Exchange, widely considered the slowest execution venue in the industry, outshines its competitors when it comes to turnaround times of less active NYSE stocks.

The development, new since the advent of the hybrid marketplace in late 2006, was discovered by analysts at the Celent consultancy.

They found that the six NYSE specialists filled small market orders in stocks not among the 500 most active NYSE names in no more than 260 milliseconds, on average. By contrast, their competitors–electronic books and wholesalers–took between 250 milliseconds and 650 milliseconds to do the same work. The one exception was the wholesaler Bernard L. Madoff Investment Securities, which filled orders in 140 milliseconds.

The trend was similar for larger market orders of illiquid names: the NYSE players filled their orders in less 1.18 seconds, on average, while their competitors took much longer. Only Bank of America’s specialist unit failed to keep up with the other specialists.

The speedy turnaround times contrast starkly with the specialists’ performances before the expansion of automatic executions that came with the New York’s hybrid marketplace. In 2006, the specialists, as a group, took between 10 seconds and 15 seconds to fill orders, Celent noted.

When it comes to market orders in more liquid stocks, the specialists lose their advantage, but not entirely. As a group, they perform better than some of their competitors, but not all, Celent found.

But when it comes to marketable limit orders in the most liquid stocks, the specialists rank dead last.

NYSE executives have always maintained the exchange needs to get faster. Under a new initiative to change the way specialists interact with incoming orders, the exchange believes it will become more competitive with such electronic books as Nasdaq and BATS Trading. Many of the electronic books can process orders in less than 10 milliseconds. The best time at the New York is 50 milliseconds, according to officials.

Celent crunched data from 176 market centers’ Dash-5 (Securities and Exchange Commission Rule 605) reports from December 2007 through February 2008. They ranked the venues based on speed and pricing performance.

The analysts grouped the players into three categories: NYSE specialists, electronic books, and wholesalers. In all, it waded through 16 billion orders of less than 10,000 shares each in the NYSE’s approximately 2,700 securities. That amounted to a grand total of 215 billion shares, or 3.5 billion shares per day, on average. The NYSE specialists accounted for about two-thirds of that volume.