Open Prices - Consolidated Quotes
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About twice a week I end up spending about 10 minutes explaining to people the difference between a consolidated quote and the primary exchange quote. It usually comes about as a result of differences in the various prices and exchanges upon which the stocks trade. This is typically an issue with listed stock quotes.
Let me provide an example. Today we had many orders for MU, Micron Technology. Regardless of whether they were buys or sells, market orders should be routed to the NYSE pre-open. The specialist then matches buyers to sellers, starts to determine the opening price based on the supply and demand, ultimately determining a price where there is equilibrium. The specialist then puts up one large print, whereby all market orders get filled, all at the same price, regardless of whether they are a buy or sell.
Take a look. Pull a quote on MU for today, 10/31/98. Most quote systems provide a consolidated quote as default. That is it provides the last, high, low, open, close, volume, etc. based on a consolidation of all the various exchanges upon which the stock trades.
For example, in MU, at 11:00, the consolidate (combining NYSE, Third Market, Pacific Coast, Cincinnati Exchange) quote read:
Consolidated Quote: L -38 9/16 Bid - 39 1/2-N Ask 39 3/4 - T Open 39 1/2 last at 11:00am
Adding a Qualifier, .T, gives you the third market quote:
Third Market: L- 38 9/16, B-39 7/16 Ask 39 3/4, Open 39 1/2 last at 10:54am
Adding a qualifier such as .N, thus giving you MU.N gives you the New York quote:
NYSE: L - 39 5/8 B - 39 1/2-N ASK 39 13/16 - N Open 39 7/8 last at 11:00
Analyzing this information, you can see that the NYSE open for the day was 39 7/8. This is the price at which the specialist on the NYSE matched the buyers to the sellers. This is where all market buy and sell orders should have been filled. Some might say, "Well, then why not put it in the third market where it opened at 39 1/2?".
You will not get better on a pre-open market open order in the third market. With few exceptions, you will not get better in the third market at any time. Third market makers are trading generally against your order. You may do as well, but rarely better. On a rare occasion, a third market bid might be superior to the NYSE and worth hitting or a third market ask might be superior and worth taking..
For example, in the consolidated quote above, the third market offer is 39 3/4, while the best NYSE offer is 39 13/16. Thus , a saavy trader should try to sell the stock to the third market, superior bidder. Nonetheless, the NYSE will generally match third market quotes to be competitive but this is not guaranteed. An order routed to the NYSE might cost you 13/16 while the stock could have been bought in the third market at 3/4.
The most confusing issue relates to opening prices. The consolidated quote shows a 39 1/2 open. This is what leads to the 10 minute discussions. Clients pull quotes and see the 39 1/2 consolidated open and those who were buyers wonder why they did not get filled at that price. The 39 1/2 could have been the opening price, the first price, on the third market, which might have been 10 minutes after the NYSE open. The stock was at the 39 1/2 at that point as the stock was falling. As well, the trade could have occurred pre-open. If the stock opened at 39 1/2 to 39 7/8 (7/8 opening print on the NYSE) , a third market maker might have taken stock at 39 1/2 from a client, on a clients' market sell order, just after the NYSE opening print.
Now, normally, I recommend that a trader look at a consolidated quote when looking at bids and offers as it will give you the best bids and best offers, if they are superior to the NYSE. Yet when looking at opens, closes, highs and lows, be sure to look at the NYSE. If you see higher high on a secondary exchange than the NYSE or a lower low, don't be envious. You could not have sold at that higher high or bought at that lower low. It is most likely some client, somewhere buying at that higher high, or selling at that lower low, a true disadvantage to the NYSE, the most liquid exchange. |
