Market makers1 play a key function in markets, committing capital to bridge timing differences between buyers and sellers. With the industry debating underlying market structure tenets such as tick sizes there has been renewed focus on different types of market making activity. NYSE Research has produced a white paper examining market making in US cash equities and highlighting the value of the NYSE Designated Market Maker (DMM) model compared to other U.S. equity market making models.
NYSE DMM Depth of Book Performance
These obligations mean NYSE DMMs provide consistent liquidity throughout the trading day and at multiple price levels, helping to dampen volatility. In S&P 500 stocks they have displayed liquidity more than 66% of the time within 10 basis points of the NBBO. In the less liquid securities of the S&P 600 Smallcap Index, DMMs provide liquidity within 10 basis points of the NBBO 63% of the trading day.
In summary, NYSE DMMs’ unique set of obligations and benefits results in better trading for NYSE-listed companies. Registered market makers, in contrast, have flexibility to participate when conditions are favorable and remain largely anonymous. Our new paper explores these issues in detail.
Activity in NYSE’s Retail Price Improvement Program for stocks not listed on the NYSE has shown strong growth since its launch last December. Tape B activity recently peaked at more than two million shares.
To enhance visibility and understanding of the Closing Auction process, NYSE has introduced a graphical interface with a trailing three months of closing imbalance feed historical data for the 1,000 largest daily Closing Auctions.
NYSE research reviewed option usage trends to end 2022 and start 2023: 2022 options market activity was generally aligned with equity market moves. Average monthly put-call volume ratio in 2022 was higher than 2021 but declined sharply at beginning of 2023. In 2022, floor traded a higher put premium relative to call but a much lower put premium in 2023. Moreover, electronic trading saw more activity in SPY and QQQ, while floor trading saw most activity in HYG. Also, floor trading had a significantly higher put-call ratio than electronic trading for days around FOMC meetings and CPI announcements over most of this period.