NYSE to Give Upstairs Traders Access to Reserve Orders

One of the last advantages of being a New York Stock Exchange floor broker will likely go by the wayside by the end of the year.

The NYSE, in an effort to regain market share, is planning to roll out a pilot program this year that will offer outside brokers access to reserve book functions, according to Lou Pastina, executive vice president of NYSE operations. Reserve orders, or undisplayed priced orders resting on the NYSE book, have been the exclusive domain of floor brokers.

The reason for the pilot is to see how it works, Pastina says. “There will be some changes in behavior. That is one of the other reasons for the pilot, so we can see what those changes might bring, and to make the appropriate adjustments.”

Since the NYSE’s hybrid market was introduced the NYSE’s market share of its own stocks has been roughly halved–and now hovers around 40 percent. The reserve function, also known as Equotes, had been available only to floor brokers, even though upstairs brokers wanted that function, too. An upstairs trader had to use a floor broker to place a reserve order.

Opening reserve functions to upstairs brokers would weaken the prospects of those brokerages with a floor presence, says Craig Rothfeld, executive director of WJB Capital Group, which is a NYSE member firm with an upstairs trading desk. It would “continue to diminish the need for people on the floor and could potentially hurt the viability of the agent broker that’s paying his membership dues and trying to build a franchise out on the floor of the exchange,” he says.

But it would also help the NYSE recapture some of its lost market share, Rothfeld adds, by making it easier for people to access liquidity there from an upstairs desk rather than having to send it to the floor. Others agree, including Joe Cangemi, managing director in electronic sales at BNY ConvergEx. Cangemi, a 25-year-veteran of the floor before moving upstairs, says the move is long overdue and would go some ways to correct what some see as a handicap for the exchange.

“Market share is about liquidity,” he says. “So, once they have the same or similar toolset, they can compete for the liquidity by providing enhancements to the marketplace: faster, more efficient access to deeper pools of liquidity, as well as dark liquidity.”

Pastina adds that floor brokers would still retain one advantage.

“You still have 400 brokers walking around with interest who have the potential to cross orders in ways that reserves orders may not provide.”