IS 356 IT for Financial Services pptallon/is356.htm NYSE: A View from Within.
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Transcript of IS 356 IT for Financial Services pptallon/is356.htm NYSE: A View from Within.
IS 356IT for Financial Services
http://www..evergreen.loyola.edu/~pptallon/is356.htm
NYSE: A View from Within
April 21, 2023
Outline
How does the NYSE operate (say in contrast to NASDAQ)?
Who are the players involved in the NYSE? Follow an order through the system… What technologies support the NYSE? NYSE feels the heat
First from NASDAQ, then from others Going global
Conclusion
2/22
April 21, 2023
Introduction The largest securities market in the U.S. (estb. 1792) Physical mechanism for trading of securities via a competitive
agency-auction market (double auction)– Labor intensive: open-outcry around specialist posts (not straight through
processing) The key to NYSE’s leadership position has been the amount of
liquidity is provides to the market – less a function of its on-going, and somewhat erratic, application of new
technologies and systems development Threatened by NASDAQ and ECNs Private (membership-based) organization until recently
– Predictable reaction to new technology adoption that threatens the positions of the members (if it’s not broken, don’t fix it)
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Useful link: http://en.wikipedia.org/wiki/New_York_Stock_Exchange
April 21, 2023
Trading on the NYSE… in NYSE listed securities
Source: http://www.nyxdata.com/nysedata/asp/factbook/viewer_edition.asp?mode=table&key=3000&category=3
Average order range: 198 – 1,058; average order size = 266 in 2011
4/22
April 21, 2023
The Rise of Computer-originated Trades
http://nowandfutures.com/fed_watch.html
60-80% of volume is computer generated
Program trading is about 35-40% of NYSE daily volume
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April 21, 2023
High Frequency Trading
http://nowandfutures.com/fed_watch.html
6/22
http://www.rhsmith.umd.edu/digits/pdfs_docs/papers/nyse_rbv_ver_d.pdf
April 21, 2023
More on HFT
7/22
April 21, 2023
Time is Money
http://thefinanser.co.uk/fsclub/2009/08/flash-goldman.html
8/22
April 21, 2023
Flash Crash (May 6, 2010)
9/22
April 21, 2023
How the NYSE used to operate Orders are sent to a floor broker through a system known as
Broker Booth Support System (BBSS) The floor broker transmits the order to a stock specialist
using the BBSS or prepares a physical paper order – cross trade is possible but subject to specialists’ approval
Orders can also be sent directly by the broker through the SuperDot computer system: this eliminates the floor broker, order goes directly to the specialist’s workstation
– The broker (or client) may not want this as it shows the clients’ hand to the market at large – the client may want to get a better deal than have the order automatically execute – if they walk over to the specialist, they may get a better price
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April 21, 2023
Follow an order through the system
client broker w/ member firm
floor broker located on the
edge of the trading floor
runner
specialist post
broker broker
price quotation
updated streaming stock ticket information
SuperDot
Behind the Scenes at the NYSE (YouTube)
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April 21, 2023
Specialists (Designated Market Makers)
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April 21, 2023
NYSE Technologies Electronic order-routing system through
which NYSE member-firms transmit orders directly to the specialists’ trading post
After execution, a report is sent directly to the member-firm over the same electronic circuit that sent the order to the specialist
Capacity: 2.5 billion shares per daySuperDot
BBSS
Order-management system that enables member firms to quickly and efficiently process and manage their orders
Selectively routes orders electronically to either the trading post or the booths on the NYSE Trading Floor
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April 21, 2023
NYSE Technologies (cont’d…) A mobile, PDA-like device enables brokers to
receive orders, disseminate reports, and send market "looks," in data and image formats
The monitor is provided for viewing by specialists
Multiple data sources incl.: Point-of-Sale (POS) books Overhead "crowd" displays Market montage Various vendor services
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April 21, 2023
Specialist Trading Post20 trading posts
1,500 trading booths on the edge
Every listed security is traded at a unique post by one specialist. All buying and selling takes place around these posts
Specialists manage the market in the specific securities allocated to them. Specialist units can be run as companies or partnerships. There are 12 such firms employing 482 specialists, controlling 2,800 stocks. Specialists can buy and sell for their own account but face stiff controls as they have critical access to order-book information.
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April 21, 2023
Trading Floor Tour
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April 21, 2023
NYSE Datacenter
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400,000 square feet, Mahwah NJ Massive redundancy Scalability (throughput + speed) Juniper Networks
Speed considerations Fewer devices = more speed
Colocation facility
April 21, 2023
UK Datacenter
April 21, 2023
Ongoing Developments Order books are traditionally private as they constitute a source of
valuable information– NYSE Openbook (from January 24, 2002)
After-hours trading / 24-hour day trading– Neither currently available (after-hours dominated by ECNs)
Meeting the ECN threat (NYSE Direct+)– Trade through rule in effect since 1975– Small trades: limit orders up to 1,099 shares– Processes 10% of NYSE daily volume– 30 second time limit between orders– Try to take business from third market: NASDAQ dealers who trade
NYSE, AMEX and other stocks– Rule 390 (since abolished by NYSE)– Merged with Archipelago or ARCA|EX (major development!!!!!!!!)
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April 21, 2023
NYSE Group
NYSE Group (NYX) is now a publicly traded company
20/22
Europe is the next round in the NYSE vs. NASDAQ fight NYSE merged with Euronext in 2006
stock chart from http://www.cnbc.com.
April 21, 2023
Conclusion Advances in IT has provided the opportunity for processing of orders from
the trading desk to the trading floor at incredible speeds Technology has enabled NYSE to operate more efficiently… but…
The NYSE remains one of the world’s most technologically advanced exchanges and is continually striving to upgrade and enhance current IT
Little possibility that trading will be exclusively electronic (like NASDAQ) and that all trades will be paper-less but that possibility cannot be ignored
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April 21, 2023
For Next Class… Read
– Articles on the course website
– NASDAQ slides and related materials
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