The NYSE market model features a Designated Market Maker (DMM) for each listed security. The DMM has unique responsibilities to actively make markets (i.e., quote bids and offers) throughout the trading day, both at the inside market prices and throughout the order book. The DMM is also responsible for executing the NYSE Opening and Closing Auctions, and is obligated to ensure all marketable auction orders receive an execution. Other markets do not apply such obligations to any market makers.
The NYSE DMM’s obligations have notable impact on highly volatile days, such as January 24, 2022, when the S&P 500 index’s trading range was 4.6%, the widest since the Pandemic-induced volatility on March 26, 2020. The NYSE market model and our Pillar technology, however, helped dampen volatility and uncertainty in NYSE-listed securities on the substantial trading volumes experienced on January 24th. NYSE DMMs’ obligations are in effect throughout such trading conditions, resulting in better market quality for NYSE-listed securities. Underlying this trading activity was NYSE’s Pillar Technology, which handled twice the average messaging load with no impact to speed or user experience.
The largest single trades each day are the Opening and Closing Auctions. The DMM is obligated to conduct the auction and, if needed, can participate in the auction to help produce a price that more accurately reflects market conditions. On January 24th, DMMs participated in Opening and Closing Auctions at nearly twice their usual rate. This contributed to NYSE Auctions achieving prices closer to market trading prices in times near the auctions.
DMM Displayed Liquidity Providing on NYSE
Represents DMMs' share of displayed liquidity providing as a % of total displayed liquidity providing, indexed to Dec 27-31.
This increased participation from DMMs contributed to NYSE maintaining its superior market quality. Consolidated quoted spreads, one important factor in trading costs, were lower for NYSE-listed securities across Large, Mid, and Small Cap indices as compared with Nasdaq-listed securities.
Consolidated Bid-Ask Spreads
January 24, 2022; basis points
As we’ve discussed in our options market update and quarterly earnings preview, we anticipate continued higher volatility in the coming weeks. The combination of earnings news, monetary policy, and macroeconomic events may lead to additional significant market moves. The NYSE market model and Pillar technology provide superior market quality, which is even more critical than usual during such periods of uncertainty.
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.
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.