NYSE Tops Nasdaq on Investor Prices, Not Speed, SEC Study Says
Washington, Jan. 8 (Bloomberg) -- Investors can expect to get
better prices on the New York Stock Exchange than on the Nasdaq
Stock Market for all but the largest stocks, a Securities and
Exchange Commission study found.
The SEC economic study also found, though, that individual
investors often get faster execution of small orders on Nasdaq,
the second largest U.S. stock market, than on its rival.
The 23-page report said investors who trade 300 shares of
most Nasdaq stocks can expect to pay as much as $16.50 more than
they would when trading a comparable NYSE security.
That's because trading spreads, the difference between the
buying and selling price of a stock, are as much as 11 cents a
share wider on Nasdaq for small orders, the study said. A wider
spread means worse prices for investors and typically higher
profits for the brokerages arranging the trade.
``For Nasdaq, it confirms a challenge it faces, and
quantifies what most traders freely acknowledge -- the ability to
trade inside the best displayed quotes is substantially limited,''
SEC Chairman Arthur Levitt said.
Levitt, who plans to retire in the next few weeks, also
chided the NYSE over the study's findings on trade-execution time.
``For the NYSE, it sheds further light on the time it takes
for incoming orders to interact with trading interest on the floor
-- time its customers have long pressed this market to reduce,''
the SEC chairman said.
The staff study, which compared 221 stocks in each market
during the week of June 5, 2000, offered no policy
recommendations.
The study found that on Nasdaq, executions of small customer
orders are as much as 18.7 seconds faster than on the NYSE. That's
more than three-and-a-half times the speed of order execution on
the Big Board, it said.
The NYSE, the world's largest exchange, is an auction market
where specialists on the floor handle the vast majority of orders
for Big Board stocks. Nasdaq is an electronic, dealer-based market
in which many orders are matched internally from the dealer's own
inventory.
``The study should increase pressure on Nasdaq to make its
market more efficient,'' said Vanderbilt University finance
professor Hans Stoll, who reviewed the report. ``Are these numbers
really big? I don't think so. But for the small investor, the
difference in prices might well lead him to conclude that the NYSE
would be a better market for him, despite the higher speed on
Nasdaq.''
The SEC study found no meaningful difference in trading
spreads for the largest Nasdaq and NYSE stocks. Among the biggest
Nasdaq stocks are Microsoft Corp., Intel Corp. and Cisco Systems
Inc. The largest NYSE stocks include General Electric Co., IBM
Corp., and Exxon Mobil Corp.
The study found Nasdaq spreads are more than double the size
of those on the NYSE for small orders of stocks with between $200
million and $1 billion in market value.
Without analyzing the reasons for the difference in prices
between the two leading U.S. markets, the report said customers
have less opportunity on Nasdaq to place orders that improve on
the best available price.
The study also noted that Nasdaq is more fragmented, so that
``most of the trading is done with dealers with relatively little
interaction between customer orders.''
Nasdaq officials said the study should also have considered
other factors -- such as volume and price visibility -- that bear
on the quality of a market.
``We object to a government study that seems to bless one
market over another by taking a narrow, tunnel-vision approach,''
said Nasdaq executive vice president John Hilley.
Nasdaq President Rick Ketchum expressed concern that the
study could harm the market's business ``if investors and
companies see our market differently as a result of a misleading
snapshot.''
NYSE research vice president George Sofianos said the
exchange was aware that small orders were executed more quickly on
Nasdaq.
``We tell investors, if you want speedier execution, we can
give it to you,'' Sofianos said. ``But if you are willing to wait
a few more seconds, you can get price improvement.''
The SEC initiated the study of the two largest U.S. stock
markets in 1999, as it was considering whether to centralize
information and trading among U.S. exchanges. This review led the
SEC to adopt a rule last November requiring brokerages to release
composite statistics on where they send customer trades and how
well these orders are filled.
© Copyright 2000, Bloomberg L.P. All Rights Reserved. |
