NYSE Proposes Institutional Order Types

Terry Flanagan

NYSE Euronext is proposing a one-year pilot program to establish an Institutional Liquidity Program that will promote interaction between institutional investors and liquidity providers through a targeted size discovery mechanism to execute trades larger than the average size currently occurring on the Exchange or in most dark pools.

The Institutional Liquidity Program will facilitate interactions between institutional customers and providers of liquidity that exceed minimum size requirements, defined as two new order types:

Institutional Liquidity Order: a limit or market order for NYSE-listed securities of 5,000 or more shares with a market value of at least $50,000, or a child order of a recorded instruction that meets such size requirements.

Oversize Liquidity: a non-displayed limit order for NYSE-listed securities with a minimum size of 500 shares for securities with a consolidated Average Daily Volume (“ADV”) of one million shares or greater, or a minimum size of 300 shares for securities with an ADV of less than one million shares.

“The Institutional Liquidity Program is an attractive trade execution solution for institutional investors and, by providing a size discovery mechanism for institutional orders within an exchange environment, will ensure greater transparency, liquidity and competition throughout the U.S. cash equities marketplace,” said a spokesperson for NYSE Euronext.

Public exchanges have expressed increasing concern about the migration of orders entered by investors who are less informed as to short term price movements toward dark venues and away from the public markets.

Some of this competition is through cost, some through order handling practices, and much of it is through client segmentation whereby non-exchange venues are able to incentivize their own or third party liquidity provisions based on the nature of the person they are trading against, NYSE said in a regulatory filing. As a result of this advantage, large broker dealers continue to move more order flow into their own private trading venues for a “first look” before routing on to the lit public markets.

What NYSE is proposing is in essence a new dark pool, which is connected to the lit public markets.
“The order types are designed to work such that they include displayed orders in the matching process, while still providing the means and incentive for larger orders to meet with minimal impact,” said Joe Saluzzi, co-founder of Themis Trading. “While dark pools can, and some of the best ones actually do, provide opportunity to trade blocks of stocks with less impact, NYSE is proposing such a pool which will not detract from the public lit markets and price discovery process.”

“Exchange block trading by institutions died over the last decade as high speed traders figured out how to instantly pick off such orders,” he said. “In response, institutions turned to broker sponsored dark pools, but encountered the same problem. Now the NYSE seeks to find a solution to level the field once again.”

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