January 2017

In the coming months, the NYSE Group (NYSE) will enhance its markets to give investors and traders greater choice in how they trade. By early next year, NYSE will operate four equity market venues with their own unique market models.

Recently, NYSE announced plans to rename NYSE MKT, its market for small to mid-cap companies, to NYSE American. NYSE American will combine elements of the NYSE Designated Market Maker model with NYSE Arca’s electronic price-time execution model, and introduce a ‘delay’ mechanism intended to encourage midpoint trading.

Companies choosing to list on NYSE American will receive access to an electronic Designated Market Maker (e-DMM) with rigorous market making obligations, along with the most comprehensive IR, advocacy and visibility platform. And traders will have the opportunity to use some new features that have only recently been available on licensed exchanges.

Discretionary Pegged Orders

In 2016, the Securities Exchange Commission (SEC) approved exchanges to offer a Discretionary Pegged Order (DPO) for the first time. A Discretionary Pegged Order is a non-displayed order type that is pegged to the same side of the Protected Best Bid and Offer (PBBO), i.e. buys at the bid or sells at the offer. The order’s price automatically adjusts as the PBBO moves, and it has discretion to trade up to the midpoint of the PBBO.

A Discretionary Pegged Order will not exercise discretion to trade at the midpoint if the PBBO is determined to be unstable, a situation referred to as a “crumbling quote”. This determination is based on a formula that considers the number of protected quotes on each side of the market currently versus 1 millisecond ago, as well as the width of the spread versus the prior 30 day average.

Adjusting the price of a customer’s order based on the anticipated status of the PBBO rather than its current status is a practice commonly used by brokers, but historically, was not permitted to be offered by a national securities exchange. Subject to SEC approval, NYSE American will offer a DPO.

A 350 microsecond delay

NYSE American will file with the SEC for approval to introduce a 350-microsecond delay, which acts as an intentional speed bump between the moment an order arrives at the exchange and it is processed by the matching engine. This delay ensures that previously resting pegged orders (including DPO or other midpoint pegged orders) will have an opportunity to re-price based on away market updates before new arriving interest can trade against it. The 350-microsecond delay is also applied to outbound proprietary data and any external order routing.

NYSE American key features:

  • Expanded trading in over 8,000 securities on NYSE’s new state-of-the-art trading platform providing market participants with connectivity to all our equity and options markets
  • Electronic Designated Market Maker (e-DMM) with quoting obligations in each NYSE American-listed security, enhancing price discovery and liquidity
  • DPO offering enhanced price improvement
  • 350 microsecond delay on all incoming orders to ensure resting pegged orders are re-priced before new interest enters the order book
  • Full depth-of-book market data providing valuable transparency
  • Free trading on all displayed orders
  • Simple order types to reduce complexity
  • Comprehensive listing services include market intelligence desk, NYSE Connect market data platform, regulatory advocacy.