NYSE floor brokers operate on an agency basis on behalf of institutional investors and broker-dealers, including market participants representing retail investor interest. Traditionally, floor brokers at the NYSE had substantial discretion and flexibility when representing client orders manually on the trading floor. Today, NYSE blends modern electronic trading with human judgment and assessment, and provides electronic tools that enhance the ability of floor brokers to perform their traditional agency function in today’s fast-paced markets. One of those tools is the “d-Quote”, which is short for discretionary e-Quote. d-Quotes use technology to replicate the floor broker’s traditional manual role to exercise discretion at what price he or she is willing to buy or sell in reaction to contra-side orders, both in continuous trading and in auctions. Because d-Quotes permit floor brokers to interact with contra-side orders at a range of prices, they offer additional flexibility over Market on Close orders (MOCs) and Limit on Close orders (LOCs) residing in the electronic order book.
How d-Quotes Work
While d-Quotes are available for use throughout the trading day, most d-Quote executions occur in the closing auction. At 3:55 p.m., d-Quote interest eligible to participate in the closing auction is added to the order imbalance feed. d-Quotes can also be submitted, or modified up to 3:59:50 p.m., and cancelled at any time before 4:00 p.m. These distinct features of d-Quotes are designed to facilitate the floor broker’s traditional agency role on behalf of larger institutional interest, allowing floor brokers to work in conjunction with their clients to find larger liquidity opportunities.
There are no restrictions on which side of the market a d-Quote may be entered, and, along with other order types or market events, a d-Quote can “flip” the imbalance for a closing auction from one direction to another. This dynamic interaction allows liquidity to build upon itself and creates opportunities for substantial size to trade in the closing auction.
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The NYSE trading floor plays an important role in the closing auction, and interest represented via the floor currently contributes more than one-third of total Closing Auction volume (see chart). At the same time, total volume in the close has grown to more than 6% of NYSE-listed volume, larger than any other auction and most other trading venues. The NYSE Trading Floor, and tools such as d-Quote, help investors maximize the benefits of the NYSE closing auction, the largest single liquidity event in an increasingly fragmented market.