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BOND transfer to NYSE improves market quality

Author
Kevin Tyrrell
Head of NYSE Research

Published
December 14, 2022

Author
Choey Li
Quantitative Research Lead, NYSE

On November 14th the PIMCO Active Bond ETF (NYSE: BOND) transferred its listing to the NYSE. As a NYSE-listed security BOND now benefits from NYSE’s unique combination of state-of-the-art technology and human judgement at the point of sale. The NYSE market model has resulted in improved market quality statistics for BOND since the transfer; BOND now trades with tighter and deeper quoted markets throughout the day, and opening and closing auctions execute at prices closer to relevant benchmarks.

Better liquidity

A security’s liquidity is a key determinant of trading costs; more available liquidity allows trades to enter and exit positions with less market impact. Two foundational liquidity metrics are quoted spread, which is the difference between the consolidated best bid and best offer across the market (NBBO), and quoted notional size, which is the total amount of trading interest quoted at the best bid and offer. The NYSE DMM has unique quoting obligations which contribute to better liquidity for NYSE-listed securities.

BOND has improved well beyond the peer group in both of these key metrics since the transfer. The median daily quoted spread has dropped 65%, and the median notional quoted size has increased by 80%. Once again, the peer group showed far less change over this period, highlighting the liquidity benefit of the NYSE market model.

BOND liquidity metrics: quoted spread and quoted size

Better opening & closing prices

The NYSE DMM is responsible for running opening and closing auctions each day in their assigned securities. DMM involvement in these key market events both guarantees the execution of all interest priced at or better than the auction price, and results in prices more aligned with key market benchmarks.

To measure closing auction market quality in BOND, we compared the closing price to both the NAV and the last quoted midpoint price in the market before the auction. Both metrics improved for BOND after the transfer to NYSE; the closing price to NAV dislocation dropped 43%, and the closing price to last quoted midpoint dislocation dropped 29%. A peer group of similar funds showed far less change over the same period, highlighting the NYSE market model’s performance benefit.

Similarly on the opening auction, BOND’s transfer resulted in less price dislocation. For the opening auction we compare the opening auction price to the market’s consolidated volume-weighted average price (VWAP) over the 5 minutes of trading after the auction.1 BOND’s opening auction dislocation declined 26.4% after the transfer, with the peer group showing less than half as much change.

BOND closing price dislocation to NAV and closing midpoint

BOND opening price dislocation to NAV and closing midpoint

Conclusion

BOND transferred to NYSE and immediately began enjoying the NYSE’s market model benefits. Liquidity is better throughout the trading day, opening prices are more indicative of upcoming trading, and closing prices better reflect both intra-day trading interest and the fund’s NAV. The NYSE market model places unique market quality obligations on DMMs, which contributes to the outperformance seen in BOND.


1. Data compares October 1 through November 11 to November 14 through December 9 and sourced from the SIP.

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