Q&A: About liquidity providers -- day traders and Abbie Hoffman

By: Ray Pellecchia

File Under: NYSE, NYSE

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A day trader writes:

Hi, I am a liquidity provider in most of my trading day. Can you please explain me how exactly my orders will be price improved under the Hybrid Market, with the SWEEPS and LRP. My understanding is that if I have an order to buy or sell below or above the BB or BO and somebody sweeps the book I am getting the price I have already put my order and not beeing improved. Can you please give me example of price improving for the liquidity providers?

Thanks

As a Hybrid-Building Colleague explained it to me: the original Hybrid Market filing contemplated rewarding liquidity providers like you during sweeps if they had an order on the Display Book between the best bid/offer and the sweep price. In the original design, that order would not get its limit price but would get the sweep price; thus, price improved.

When we reviewed this with customers, everyone applauded our effort to change an industry standard, but in the end, no one was willing to pay liquidity providers, and they all said they would prefer a sweep where the order got its limit price. So we modified the sweep design to reflect that customer feedback.

BUT that is for electronic sweeps. The floor broker, as agent for larger institutional orders that frequently trade in Rule 127 fashion (in which a sweep-price execution is still possible) will still be able to provide price-improvement opportunities to resting limit orders entered by liquidity providers.

Hope that answers your question. For more on the subject, see this recent post about this change. Thanks for writing.

And while I'm on the ol' Thinkpad with the Verizon Wireless card, watching the kiddies in the sunny and breezy hotel pool, as the Boss said, "Greetings from Asbury Park"! Well, not Asbury, exactly, but Point Pleasant. Hadn't planned to post anything this week but hate to see the maibox go untended for so long.

And also while I'm at it, here from nyse.com is a historical note about someone who once provided some liquidity in a famously (infamously?) different way:

Today in NYSE History
24 Aug 1967 Abbie Hoffman and a group of protesters denounced capitalism from the NYSE Visitors Gallery and threw dollar bills onto the trading floor, creating a considerable disturbance.