Institutional traders have long complained of the difficulty of trading large blocks of shares on the New York Stock Exchange (NYSE). Firms have often been forced to break up trades of 50,000 or more shares, spreading the process over several days, and risking to price fluctuations, in order to execute their orders.
In and Out
The large size of these trades often places quotes outside of the best bid and offer quote offered to the trading community. Most quotes that are inside the best quote are for smaller trade sizes.
The problem has been exacerbated by the move to decimal stock trading, which has led to even smaller average order sizes.
Many firms, frustrated with the system, now bypass it, by executing their largest trades in the “third market” – among themselves.
With its new dual quote program, which is subject to approval by its board, the NYSE hopes to stop this practice, which is eating into the NYSE’s market share. The Big Board aims to create a new set of trading quotes for all stocks that will allow institutional traders to view and execute trades away from the floor.
The NYSE faces a series of new electronic rivals. Among them is SuperMontage, the new trading system of the Nasdaq stock market.
SuperMontage will offer traders many of the same functions the NYSE has built into its dual quote system and is expected to start trading some of the same stocks as the NYSE, according to reports.