Wall Street & Technology is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Exchanges

01:18 PM
Anshuman Jaswal, Ph.D., Senior Analyst, Celent
Anshuman Jaswal, Ph.D., Senior Analyst, Celent
Commentary
50%
50%

Execution Quality:Electronic Order Books Dominate

New reports from Celent on Execution Quality in NYSE and Nasdaq stocks found that electronic order books (EOBs) such as BATS, Nasdaq, NYSE Arca and Direct Edge's EDGA and EDGX, are leading performers when speed and price are taken into account, but the NYSE specialists/DMMs are the fastest, except for small orders.

Overall, EOBs are the leading performers when both speed and price are taken into account. BATS Exchange, EDGA, EDGX, and Nasdaq MC are the best performing market centers, followed by NYSE Arca, UBS Securities, and Goldman Sachs Execution and Clearing. The specialists/DMMs are performing well on speed, but their pricing is not up to the mark.

Nasdaq: EOBs continue to dominate the NASDAQ market for the covered shares. The three leading EOBs control 61 percent market share, while the three leading market makers have only 14 perent market share. The share of the leading EOBs, viz., Nasdaq MC, BATS Exchange, and EDGX, has gone up from 44 percent since our 2009 report, which is a large percentage.

The time taken to execute an order rises as the order size goes up for the EOBs, market makers, and participants. Market makers have improved their performance since 2009, but the performance of EOBs has declined marginally. Except in the 2,000-4,999 order range, the average execution speed of the EOBs has gone down. However, the execution speed has significantly improved for the market makers.

While BATS Exchange and NYSE Arca continue to be among the best market centers with regard to speed, Surge Trading has also performed well, and this illustrates that there is always room for improvement in the performance of market centers, and the best firms should not sit on their laurels. With regard to price, market makers have a maintained a price improvement of around 80 percent for top 100 issues. This is much better than that of the EOBs and stresses the importance of their role in the market. The EOBs by comparison have only 34 percent price improvement, less than half the percentage of the market makers. It is seen that there has been an improvement in terms of both price and speed. Hence, we see this as a sign of the continuous evolution in market efficiency and believe that firms can improve even further.

Unlike last year, there is no clear leader with regard to both price and speed among the market centers. LeveL ATS, NYSE Arca and BATS Exchange are the leading performers with regard to price. For speed, Nasdaq MC, BATS Exchange, EDGA Exchange, and NYSE Arca are the leading market centers. Hence, the EOBs seem to be better in terms of overall performance as compared to the market centers.

Previous
2 of 3
Next
More Commentary
A Wild Ride Comes to an End
Covering the financial services technology space for the past 15 years has been a thrilling ride with many ups as downs.
The End of an Era: Farewell to an Icon
After more than two decades of writing for Wall Street & Technology, I am leaving the media brand. It's time to reflect on our mutual history and the road ahead.
Beyond Bitcoin: Why Counterparty Has Won Support From Overstock's Chairman
The combined excitement over the currency and the Blockchain has kept the market capitalization above $4 billion for more than a year. This has attracted both imitators and innovators.
Asset Managers Set Sights on Defragmenting Back-Office Data
Defragmenting back-office data and technology will be a top focus for asset managers in 2015.
4 Mobile Security Predictions for 2015
As we look ahead, mobility is the perfect breeding ground for attacks in 2015.
Register for Wall Street & Technology Newsletters
Video
Exclusive: Inside the GETCO Execution Services Trading Floor
Exclusive: Inside the GETCO Execution Services Trading Floor
Advanced Trading takes you on an exclusive tour of the New York trading floor of GETCO Execution Services, the solutions arm of GETCO.