Exclusive Online Only ContentNYSE Will Offer Electronic Reserve Orders
March 31, 2008
The New York Stock Exchange said Friday that it plans to introduce two types of reserve orders for electronic entry, pending regulatory approval, and will roll them out in two phases. Reserve, or iceberg, orders--a common feature on fully electronic equities platforms--allow investors seeking to move large blocks to publicly display only a small portion of the order.
“This is about providing our customers with greater choice and flexibility in how they access our market,” said Lawrence Leibowitz, EVP of U.S. markets and global technology at NYSE Euronext, in a statement. “We’re continuing to advance the NYSE market model by focusing on our clients’ interests and developing new solutions such as reserve orders to serve their needs.”
In the second quarter, NYSE will launch a 100-stock pilot for reserve orders, requiring users to publish at least 100 shares. The displayed contracts will be visible on both the exchange floor and NYSE OpenBook, which provides real-time limit order book data for the Hybrid Market in graphic form. Manual orders will receive trade-through protection.
Phase two, which is slated for the third quarter and will apply to the 100 stocks included in the first stage, will add non-displayed reserve orders. The hidden liquidity reserve orders will not be eligible for inclusion in floor trades, according to the exchange.
Ray Pellecchia, spokesperson for NYSE Euronext, said that the exchange recognizes it has “a diverse array of clients who want us to make it easier and cheaper for them to find and access liquidity.” Previously only floor brokers were able to execute reserve orders.
“While electronic reserve orders with a displayed component will receive price protection when interacting with the floor, they will not be price improved,” noted Matthew Samelson, senior analyst at Boston-based research firm Aite Group. “That still provides a slight advantage to the floor and the party sending the electronic order may not receive the full benefit they might receive elsewhere.”
NYSE Arca on March 12 introduced a routing and price improvement service touted as “the first of its kind from an exchange,” offering clients access to dark liquidity. By routing to participating broker-dealers and alternative trading systems, the service provides investors with “unprecedented access to non-displayed quotes and the industry’s largest aggregation of liquidity by an exchange,” according to NYSE.
Leibowitz noted at the time that “providing easy and efficient access to these diverse, non-displayed liquidity venues is an extension of our commitment to offer the greatest array of services to our clients,” adding that “by linking more market participants than any other exchange, we are reducing fragmentation and offering our clients greater speed, better prices and equality of access to liquidity.”
Iceberg orders have also been making their way into the options market. Both the International Securities Exchange (ISE) and the yet-to-launch Nasdaq Options Market received approval this month to offer reserve order functionality. ISE had applied to the Securities and Exchange Commission to introduce the order type in October. Nasdaq’s homegrown options venue incorporates components of its equity exchange such as reserve orders (Securities Industry News, March 17).
