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.
In this post, we dive into the NYSE Closing Auction and provide an inside view into closing auction order entry time dynamics and performance.
In this analysis, we leverage NYSE’s rich auction imbalance data to better understand market impact in and around the closing auction and provide insights on relationships among order sizes, market impact, and trading costs.
A recent article in the Wall Street Journal pointed out that much of the 2023 market rally in the S&P 500 Index has been focused in eight mega-cap technology stocks. To further examine this trend, we look at some measures that could indicate whether or not retail is driving the trading, and at possible signs of sector rotation among retail investors.