IS 356IT for Financial Services

http://www..evergreen.loyola.edu/~pptallon/is356.htm

NYSE: A View from Within

April 21, 2023

Outline

How does the NYSE operate (say in contrast to NASDAQ)?

Who are the players involved in the NYSE? Follow an order through the system… What technologies support the NYSE? NYSE feels the heat

First from NASDAQ, then from others Going global

Conclusion

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Introduction The largest securities market in the U.S. (estb. 1792) Physical mechanism for trading of securities via a competitive

agency-auction market (double auction)– Labor intensive: open-outcry around specialist posts (not straight through

processing) The key to NYSE’s leadership position has been the amount of

liquidity is provides to the market – less a function of its on-going, and somewhat erratic, application of new

technologies and systems development Threatened by NASDAQ and ECNs Private (membership-based) organization until recently

– Predictable reaction to new technology adoption that threatens the positions of the members (if it’s not broken, don’t fix it)

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Useful link: http://en.wikipedia.org/wiki/New_York_Stock_Exchange

April 21, 2023

Trading on the NYSE… in NYSE listed securities

Source: http://www.nyxdata.com/nysedata/asp/factbook/viewer_edition.asp?mode=table&key=3000&category=3

Average order range: 198 – 1,058; average order size = 266 in 2011

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The Rise of Computer-originated Trades

http://nowandfutures.com/fed_watch.html

60-80% of volume is computer generated

Program trading is about 35-40% of NYSE daily volume

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High Frequency Trading

http://nowandfutures.com/fed_watch.html

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http://www.rhsmith.umd.edu/digits/pdfs_docs/papers/nyse_rbv_ver_d.pdf

April 21, 2023

More on HFT

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Time is Money

http://thefinanser.co.uk/fsclub/2009/08/flash-goldman.html

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Flash Crash (May 6, 2010)

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How the NYSE used to operate Orders are sent to a floor broker through a system known as

Broker Booth Support System (BBSS) The floor broker transmits the order to a stock specialist

using the BBSS or prepares a physical paper order – cross trade is possible but subject to specialists’ approval

Orders can also be sent directly by the broker through the SuperDot computer system: this eliminates the floor broker, order goes directly to the specialist’s workstation

– The broker (or client) may not want this as it shows the clients’ hand to the market at large – the client may want to get a better deal than have the order automatically execute – if they walk over to the specialist, they may get a better price

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Follow an order through the system

client broker w/ member firm

floor broker located on the

edge of the trading floor

runner

specialist post

broker broker

price quotation

updated streaming stock ticket information

SuperDot

Behind the Scenes at the NYSE (YouTube)

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Specialists (Designated Market Makers)

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NYSE Technologies Electronic order-routing system through

which NYSE member-firms transmit orders directly to the specialists’ trading post

After execution, a report is sent directly to the member-firm over the same electronic circuit that sent the order to the specialist

Capacity: 2.5 billion shares per daySuperDot

BBSS

Order-management system that enables member firms to quickly and efficiently process and manage their orders

Selectively routes orders electronically to either the trading post or the booths on the NYSE Trading Floor

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NYSE Technologies (cont’d…) A mobile, PDA-like device enables brokers to

receive orders, disseminate reports, and send market "looks," in data and image formats

The monitor is provided for viewing by specialists

Multiple data sources incl.: Point-of-Sale (POS) books Overhead "crowd" displays Market montage Various vendor services

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Specialist Trading Post20 trading posts

1,500 trading booths on the edge

Every listed security is traded at a unique post by one specialist. All buying and selling takes place around these posts

Specialists manage the market in the specific securities allocated to them. Specialist units can be run as companies or partnerships. There are 12 such firms employing 482 specialists, controlling 2,800 stocks. Specialists can buy and sell for their own account but face stiff controls as they have critical access to order-book information.

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Trading Floor Tour

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NYSE Datacenter

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400,000 square feet, Mahwah NJ Massive redundancy Scalability (throughput + speed) Juniper Networks

Speed considerations Fewer devices = more speed

Colocation facility

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UK Datacenter

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Ongoing Developments Order books are traditionally private as they constitute a source of

valuable information– NYSE Openbook (from January 24, 2002)

After-hours trading / 24-hour day trading– Neither currently available (after-hours dominated by ECNs)

Meeting the ECN threat (NYSE Direct+)– Trade through rule in effect since 1975– Small trades: limit orders up to 1,099 shares– Processes 10% of NYSE daily volume– 30 second time limit between orders– Try to take business from third market: NASDAQ dealers who trade

NYSE, AMEX and other stocks– Rule 390 (since abolished by NYSE)– Merged with Archipelago or ARCA|EX (major development!!!!!!!!)

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NYSE Group

NYSE Group (NYX) is now a publicly traded company

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Europe is the next round in the NYSE vs. NASDAQ fight NYSE merged with Euronext in 2006

stock chart from http://www.cnbc.com.

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Conclusion Advances in IT has provided the opportunity for processing of orders from

the trading desk to the trading floor at incredible speeds Technology has enabled NYSE to operate more efficiently… but…

The NYSE remains one of the world’s most technologically advanced exchanges and is continually striving to upgrade and enhance current IT

Little possibility that trading will be exclusively electronic (like NASDAQ) and that all trades will be paper-less but that possibility cannot be ignored

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For Next Class… Read

– Articles on the course website

– NASDAQ slides and related materials

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