People still an integral component

By: Ray Pellecchia

File Under: NYSE

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One of my NCCs (number-crunching colleagues) surfaced an interesting fact about the Phase III pilot in the stock of Lucent Technologies Inc., in which we increase the maximum size of an auto-ex order to one million shares, automatically execute all market and marketable limit orders, and remove the 30-second interval for the entry of multiple auto-ex orders.

It's important to note that all such statistics are exactly what they are -- a snapshot of a work in progress -- nothing more. We have yet to implement the Specialist API, sweeps, discretionary e-Quotes, auto-routing and other important pieces of the Hybrid Market in the Lucent pilot. So any early numbers such as these should be viewed in appropriate perspective, as results of just part of the Hybrid Market implementation.

Still, it's remarkable to consider the following. Before the pilot, automated execution accounted for less than 1 percent of NYSE trades and share volume in LU. Since the pilot began on May 12, auto ex has accounted for 96 percent of the NYSE trades in LU, but 67.2 percent of the share volume.

That means that almost a third of the share volume is being handled by the professionals on the floor as compared to being automatically executed. I don't have to remind you that much of the conventional wisdom was that in a highly liquid, high-volume stock such as Lucent, once we removed the restrictions on Direct+, there would be "no role for the trading floor."

Now, about one third of that floor volume is related to the open and close and to the "manual" completion of DOT orders. But the remaining two thirdsof the floor volume are related to "crowd" trades. So even in a penny-spread stock trading tens of millions of shares a day, there are times when sophisticated trading strategies or market situations merit a human "high touch."

This is a preliminary look, an early snapshot, subject to possible change as additional steps are implemented. But as an early indicator, it suggests that the Hybrid Market idea can work -- an affirmation that a blend of automated and human-interaction executions provides value to customers, even in a highly liquid stock.

What do you think?