Download designated market makers - The New York Stock Exchange

DMMs
DESIGNATED MARKET MAKERS
IMPROVING LIQUIDITY AND MARKET QUALITY
• DMMs are core liquidity providers – DMMs are dedicated market makers that provide liquidity in a given NYSE or NYSE
MKT security by assuming risk and displaying quotes in the exchange limit order book. In 2015, DMMs accounted for
about 12% of liquidity adding volume in NYSE-listed securities, on average.
• DMMs reduce volatility – DMMs provide price stability by satisfying market demand for a security at competitive prices. If
investors are selling, DMMs are typically buying, and vice versa.
• DMMs improve price discovery at the open and close – NYSE’s opening and closing auctions are the largest single
volume events of the trading day. DMMs contribute capital in the auctions to satisfy market demand, and provide human
judgment and communication. Volatility is typically the highest during the first hour of trading as participants digest
overnight news. DMMs help to establish the right opening price to minimize early-morning volatility.
• DMMs reduce trading costs for investors – DMMs enhance market liquidity and reduce quoted spreads.
• DMMs have much higher trading obligations than traditional market makers – The table below provides a summary of
DMM affirmative obligations under our rules and NYSE-funded liquidity provider incentives to encourage greater quoting
and liquidity. For example, unique DMM depth guidelines on the NYSE require them to dynamically add liquidity to the
order book when there is not sufficient public liquidity. These depth guidelines are customized by security and change
with every trade.
COMPARISON OF DMM OBLIGATIONS VS. TRADITIONAL MARKET MAKER
The following table summarizes DMM obligations backed by incentives on NYSE and NYSE MKT.
Regulatory Requirements
DMM
Traditional MM
Depth guidelines: Dynamically add liquidity to dampen volatility when insufficient public liquidity
Yes
No
Quoting requirements: Quote certain percentage time at best prices (NBBO)
Yes
No
Auction requirements: Facilitate orderly open/closes and contribute capital to satisfy market orders
Yes
No
Conditional transactions: Must re-enter with sufficient volume when removing liquidity
Yes
No
Capital requirement: $125 million plus additional inventory-risk capital for NYSE DMMs
Yes
$1 million
Maintain continuous quote: Must quote within a certain percentage of the best price
Yes
Yes
Individual accountability: Dedicated trader providing human judgment and communication
Yes
No
Quoting rebate: Payment to quote certain percentage time at best prices
Yes
Some exchanges
Quoting size rebate: Payment based on quoted size at best prices
Yes
No
Liquidity provision rebate: Payment based on the amount of liquidity adding volume
Yes
Some exchanges
Price improvement rebate: Payment to encourage posting midpoint orders inside the best price
Yes
Some exchanges
Market data rebate: Payment to improve quoting in less active securities
Yes
No
Flat fee rebate: Payment to improve quoting in less active securities
Yes
No
Exchange-Funded Incentives
www.nyse.com
NYSE: DESIGNATED MARKET MAKERS (DMMs)
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NYSE - LEADING THE WAY IN MARKET QUALITY 1
Most Market Share and Liquidity
NYSE
NYSE
24.4%
NASDAQ
12.4%
NYSE ARCA
NYSE
75.6%
NYSE
45.8%
NASDAQ
7.4%
BZX
Most Time at Best Prices
43.1%
NYSE ARCA
6.3%
35.5%
EDGX
EDGX
5.9%
BZX
BYX
4.2%
BYX
33.1%
24.7%
EDGA
2.3%
EDGA
14.7%
Nasdaq BX
1.8%
Nasdaq BX
14.5%
Nasdaq PSX
0.9%
Nasdaq PSX
NYSE has the most market share with almost 100% more
liquidity than the next largest exchange.
Most Block Market Share 2
NYSE
NYSE
EDGX
1.8%
CSX
1.6%
NYSE ARCA
1.4%
38.3%
Narrowest Quoted Spreads
EDGX
Nasdaq
BZX
0.5%
0.2%
BYZ
0.2%
EDGA
0.1%
Nasdaq BX
0.1%
NSX
68
233.9 bps
296.9 bps
422.6 bps
BYX
451.7 bps
EDGA
649.7 bps
Nasdaq PSX
1224.1 bps
Nasdaq BX
0.0%
NYSE has the largest block market liquidity among
exchanges.
Most Displayed Shares at Best Prices
NYSE
NYSE
1135
1279.1 bps
NYSE has the narrowest quoted spreads.
Most Time and Size at Best Prices
468.2
NASDAQ
437.3
NYSE ARCA
EDGX
383.8
EDGX
322.5
NYSE
NYSE
NYSE ARCA
BZX
bps
165.9 bps
NYSE Arca
1.3%
BZX
NYSE
NYSE
NASDAQ
Nasdaq PSX
9.5%
NYSE is at the best price (NBBO) 65% more often than any
other exchange throughout the day.
48.5%
NASDAQ
BZX
15.8%
12.2%
10.7%
6.1%
BYX
131.7
BYX
Nasdaq PSX
128.7
EDGA
1.3%
3.4%
EDGA
92.2
Nasdaq BX
1.3%
Nasdaq BX
58.5
Nasdaq PSX
0.7%
NYSE has the most displayed shares at the best price, more
than double the next largest exchange.
NYSE is at the best price with the greatest size more than three
times longer than any other exchange throughout the day.
Source: Consolidated tape data in February 2016.
1 For NYSE listed issues only.
2 Trade size of 10,000+ shares.
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NYSE: DESIGNATED MARKET MAKERS (DMMs)
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