NYSE MatchPoint to Launch on Jan. 22 for all NMS Securities

The New York Stock Exchange, for the first time, is expected to trade Nasdaq and other non-NYSE-listed securities later this month. The historic event will occur with the launch of NYSE MatchPoint.

NYSE MatchPoint, an anonymous portfolio and single-stock crossing system, will launch on January 22 with an after-hours cross at 4:45 p.m. By the end of March, the NYSE will roll out MatchPoint’s seven intraday crosses, says Jim Ross, vice president of NYSE MatchPoint. The Securities and Exchange Commission approved the system in late December.

“This will be the first time the exchange executes non-NYSE-listed securities and the first time the exchange executes portfolio-based transactions,” Ross says. MatchPoint will trade all National Market System securities. The NYSE itself will continue to trade only Tape A, or NYSE-listed, names.

MatchPoint is a facility of the NYSE that will electronically match single stocks and portfolios of stocks at predetermined times during the day and after-hours. The intraday matches take place at the midpoint of the NBBO at a randomly selected time during a one-minute interval that commences with each matching session. Those sessions will occur at 9:45 a.m. and at every hour on the hour until 3 p.m. The after-hours cross takes place exactly at 4:45 p.m., with matched orders executing at each security’s official closing price in its primary market.

The NYSE expects a broad range of member firms and their customers to use the MatchPoint service. Floor brokers will be able to submit customer orders into MatchPoint from their handhelds. Specialists on the NYSE floor will not have access to the system.

MatchPoint’s crossing engine will aggregate users’ buy and sell orders for each security and match them anonymously on a pro-rata basis based on the size of each user’s order. The system allows users to match trades internally through MatchPoint before matching against orders in the wider liquidity pool within each crossing session. Users can apply net cash constraints to portfolios to manage their risk and control the amount of cash they spend or raise. They can also specify minimum-share requirements for stocks.

This portfolio capability gives MatchPoint a significant edge over other dark pools, Ross says. “We are addressing the needs of our portfolio-based member firms and their customers,” he notes. “There is no exchange with a portfolio-based trading environment, and there’s no exchange with a truly viable non-displayed block trading environment.”

MatchPoint’s scheduled crosses will compete with other non-displayed point-in-time crosses, including ITG’s POSIT, Instinet’s crossing products and Nasdaq’s crossing platform. Like those, MatchPoint does not display information about the orders submitted. The system’s matched orders will print to the tape immediately after each MatchPoint cross as a single print (with a modifier indicating that the trade occurred on MatchPoint).

Ross notes that MatchPoint is different from some of its brethren in significant ways. The portfolio trading and internalization capabilities differentiate it from Nasdaq’s offering, he says. And unlike POSIT and Instinet, he adds, NYSE MatchPoint occurs within a “neutral exchange environment.”

Ross adds that the BIDS joint venture between NYSE Euronext and BIDS Trading will enable continuous automated non-displayed matching and negotiated crossing during the day when it eventually launches. NYSE anticipates rule approval for the BIDS facility in mid-2008. The exchange has not yet decided whether the BIDS joint venture will trade only Tape A securities or all NMS names.

The NYSE hasn’t announced its pricing for MatchPoint. Ross says the fee will be “priced competitively,” but that the exchange “won’t try to gain business by making price the leading sales pitch.” He describes MatchPoint as “a service within a neutral platform that’s open to all. We’re adding value and people have to pay for that value.”

Down the road, Ross says, MatchPoint intends to augment the ability of users to control their executions. Additional functionality could include sector constraints for portfolios and other “conditional capabilities” that allow users to manage their executions and how their orders are traded. Ross refers to the initial rollout of MatchPoint as a “first-level matching capability.”