Date: Dec 14, 2000
Publication: WST
By: Robert Sales
Big Board Breakthroughs
Ultimately, a member firm must determine what's more
important to its clients: price improvement or speed and
certainty. If price improvement is more important, than the
member should send a traditional SuperDOT order to the
specialist on behalf of its client. But if speed and the certainty of
knowing you can execute against the best bid or offer is most
important to the member's client, then Direct+ is the more
appropriate option.
On average, it takes a NYSE specialist approximately 22
seconds to price improve an order. In contrast, Burkhardt
expects a Direct+ order to get executed in "just a few
seconds," round-trip. However, pre-decimalization, an NYSE
specialist working a market order was able to get a better price
than the best bid or offer for a stock one-third of the time--and
that percentage is even higher for stocks that have been
decimalized. So, both approaches have their pros and cons.
"What you don't get in NYSE Direct+, and you do get through
a traditional SuperDOT order, is the opportunity for the
specialist to tell the crowd--if someone is holding an order in
his hand and hasn't revealed it--to step forward. And that's an
important capability for the institutional investors, especially
when they have big orders," says Burkhardt.
Indeed. Richard Rosenblatt, president and CEO of Richard A.
Rosenblatt & Co.--an execution-only institutional brokerage
member of the NYSE--says that his firm frequently routes
orders through SuperDOT. And frequently, he says, those
orders are price improved. "One of the reasons we do our
customer's business on the floor is because of the continual
opportunity for price improvement," says Rosenblatt.
That's extremely important, he says, because "price and
liquidity" are all that his clients care about. However, he
concedes that since price and speed are sometimes
synonymous, Direct+ may offer occasional benefits to his
clients. "Depending on what my client's investment philosophy
is ... the stocks they are trying to buy or sell may be stocks that
are moving actively in one direction or another. So sometimes
speed is exactly what you want," notes Rosenblatt.
All things considered, Rosenblatt expects to use Direct+
infrequently, at best. One problem lies in the fact that a typical
Rosenblatt customer order is much larger than the 1,099-share
limit of Direct+. But the firm may use Direct+, on occasion, to
get partial fills for its clients. "We might, for example, have a
15,000 share order, and might want to pick a spot where the
market is turning and very quickly access the offer on 1,000
shares ... and then it might be a useful tool."
Institutional Initiatives
While Direct+ is expected to appeal mostly to the individual
investor community, the NYSE has also introduced Institutional
Xpress--a suite of services aimed at institutions that typically
trade larger-sized NYSE orders. Xpress Information--a
market data component of Institutional Xpress that streams
real-time data to member firms--was launched in June. But the
two trading components of Institutional Xpress, which should
be of more interest to institutional investors, are not scheduled
to be launched until the spring of 2001.
The first trading mechanism NYSE expects to go live with is
Xpress Orders, a service which will provide institutional
investors with the power to execute large orders without the
risk of an order being chopped up into smaller pieces. In order
to qualify as an Xpress quote, a quote of 25,000 shares or
more must be sitting in a specialist's book for at least 30
seconds. After finding such a quote, an institutional investor,
through its member firm, will then be able to route a
SuperDOT order to the specialist--and the specialist will then
be responsible for filling the investor order for the full 25,000
shares (or more), provided it matches up with the bid or offer
being displayed on his book.
Essentially, the goal of Xpress Orders is to give institutional
investors a vehicle for getting complete fills when they are
routing large block orders. Simply put, if your Xpress Order
matches up with the best bid or offer that's been displayed on a
specialist's book (for a 30-second minimum), you're going to
get filled for the full size of your order--guaranteed. "The
specialist will expose [your order] to the crowd, and you might
get the 25,000 shares at a better price. But the worst you'll do
is get the full 25,000 shares at [the original best bid or offer]
that was displayed on the book," says Burkhardt.
After an Xpress Order is sent, it will either get filled or
automatically canceled. The fill, of course, happens when your
order is the first to match up with an order on the display book.
But the order will be canceled immediately if you happen to be
second in line. "We could have chosen to put that order on the
book as a limit order, but the feedback we got ... from the buy
side was, ÔNo, I don't want to show my hand. If I can't get
the whole quote, I don't want anyone to know I've even been
trying,'" Burkhardt says.
In the future, if an institutional investor wants to route an
Xpress Order, it will first have to contact its member
firm--either electronically or over the telephone. If they choose
the electronic method, they must input the order via their
member-firm-supplied order-entry software. The order would
then travel to the broker's trading desk, and, subsequently, to
the exchange (via SuperDOT). But regardless of which routing
option the institutional investor chooses, the member is
responsible for flagging that order.
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