Ray, Believe me when i say most of us that post appreciate your blog and the chance to express our concerns with the Hybrid. I as well as the others depend on the NYSE to make our livings thats why we are all very concerned about the changes taking place. We all want the Hybrid to work out for the best. Most if not all the complaints are legit in my opinion and i hope changes are made for the better. Thanks.

by tony dey on February 9, 2007 8:15 PM

Are you one of the morons or not? - I don't know. In any case we all have our place in this world. The fact is the hybrid system rollout has not been well though out. For instance, why weren't these order types rolled out already? The LRP's are bs in any case because nobody has time to react when one is triggered anyway, except of course for the black boxes. I'd love to see some matching and increased liquidity, but somehow I dont think thats gonna be the case, since we neutered the specialists. So what are we left with now? A market with decreased liquidity. Notice how volume has dropped on the NYSE for the month of January into the Feb earnings season. You think that is a coincidence? I dont think it is. I think it is a result of the mismanagement of the hybrid design and hybrid rollout. At least I was precient enough to be short of some NYX stock ahead of the Goldman downgrade. After all, I've been seeing the declining volume for months.

by jack on February 9, 2007 10:20 PM

How much of Hybrid is actually using ArcaEx technology/systems?

Will Hybrid eventually include derivitives or will it be used exclusively for equities?

What are your thoughts on Goldman Sachs' view that initial volume is lower than they forecasted?

Thanks in advance for your insight?

by bk on February 11, 2007 8:14 AM

Hi,

I work at a large investment bank and can say that one positive affect of the hybrid market is much better NYSE fill rates.

Your systems are still much slower than inet / NASDAQ, and we will often go there, but once you improve that, the NYSE will (IMHO) be in a much more competitive place.

by Anon on February 12, 2007 9:19 AM

Hi! I always read this site and find most of the comments very insightful....I do agree that "moron" is pushing the limits. However, from my perspective Jack, although not very articulate does make a point. LRP's were built into the system specifically to be one of the tools to dampen volitility. Obviously the specialist interest and broker orderflow will dampen volatility as well and we are far more relient on those than LRP's. If the LRP's are being hit less than 1 percent of the time and that is too frequently for some clients my next question would be what type of client is registering the complaint and how much of the entire order flow is that client base responsible for.

Personally I agree with Jack and think that we should look at why we developed LRP's and the entire system in the first place. The idea was to keep the BEST features of the manual market and combine them with the customers desire, and need for speed, efficiency, and ease of use. We needed new technology so that we would have the ability to grow our product lines and capacity, and increase our outreach and connectivity capabilities and most importantly deliver better service to our customers.

VOLATILTY is one of the most important differentiators between us and fully electronic models. I would look long and hard at doing anything that might in some way compromise our ability to preserve one of the NYSE's most attractive features to listed companies and significant source of comfort and confidence to investors.
We should also rethink the proposed new changed for a "three crowd" rule....but that is for another conversation.

Please answer my question about who is registering LRP complaints and how much of the order flow they are responsible for. Then we can end or continue this discussion.

Have a nice weekend

Doreen Mogavero

by Doreen Mogavero on February 12, 2007 9:26 AM

Ray,

I think my last post got screwed up.

Anyway, the point I was trying to make is that there clearly is no place for namecalling here but that it does speak to the frustrations that many here are feeling with the Hybrid market.

Trivia is nice, but people are struggling every day to learn how to trade these new systems and having a very difficult time with it. We all know people who are quitting... most are struggling. Everyone wants things to get better.

I feel like at this point you are saying that everything will get better with Phase IV. Are these NMS IOCs are only hope at getting filled between the bid and ask anymore? If so, they seem to be VERY important. Can you please explain IN DETAIL how these orders will work in the real world?

Like, if a stock is quoted 113.68-113.91, how will I manage to get filled in between? Where will I have to route my order and will it be automatically filled? Because if it isn't automatically filled, the market may move and the problem that is being addressed with the LRPs will happen all over again with the NMS orders.

Someone posted in the FEB 6th thread about changing to nickel spreads. Sounds like an excellent idea. Is there any consideration there for this?

Thanks,

by Chris on February 12, 2007 11:24 AM

order matching is gone and it also plays a role in why people are leaving the nyse. just last week i was trying to sell stock. the only thing i can do is limit where? i think i will get the best price. turns out my limit was .20 below where i could've gotten a better price. plus, i if i used a market order i would've been filled .15 lower. explain what types of orders will get me that "best" price please.

by brian on February 12, 2007 12:49 PM

I would like to comment on the recent sudden change in LRP.
From what I gathered in the papers, blogs and published statistics, one of the most common negative feedbacks of NYSE hybrid model generally pointed to higher price swings (volatility) due to uneventful SWEEP (temporary and artificial volume surge).
Now, that the decision was made to raise the LRP, logically the above problem would be exaggerated. Previously, stock turned slow about less that 1% and now we can expect the number to be significantly smaller.
NYSE then would become FAST all the time (except in miniscule percentage) which is the same as NASDQ except that Specialist algorithm would be involved.
The presence of Specialist algorithm has so far failed to add any values (e.g. price improvements are missing).
Have the reasoning to raise LRP been thoroughfully and carefully researched? I am just surprised with the sudden timings
Would you provide some reasons of maintaining the presence of Specialist at all in the midst of above background?

by Ron on February 12, 2007 1:46 PM

I'm not sure if my question has to do with the latests post but it does have to do with my fustrations with the hybrid system. I cannot understand why the nyse needed to even created a hybrid market. One would have thought that the purchase of arca would have been enough. It makes the most sense to me that ny could have stayed the same and if people wanted to execute electronically they had arca to do that on. The nyse was the market and now it is justbecoming a ecn. Why would you want to do that. Thats all hybrid is making the nyse. People used the dot and the floor for other reasons but also including fast execution. now that is disappearing (price improvement). if the ny becomes an ecn why would i use them and not just inet or anyone else. I wouldnt.

by josh on February 12, 2007 2:16 PM

With the new LRP change the NYSE is now just an ECN with no incentive to trade on. As already stated why would the NYSE do this if they already own ARCA?? This might sound drastic but at this point it might be better to just scrap the Hybrid as i dont really believe that phase iv will change anything for the better. For those who prefer fast execution they can use ARCA, for others who prefer matching & price improvement they would have the traditional system. Best of both worlds. With the current Hybrid its the WORST of both worlds. Thanks.

by tony dey on February 12, 2007 4:37 PM

I just listened to the 40 minute tutorial on the Hybrid market being offered on your site.

At about the 37 minute mark, the question that is being repeated over and over on this blog came up.

The question posed to Mr. Flanagan was "So there will be no price improvements on auto-ex orders?" He answered, "No, that's not true. The specialist's algorithim can price improve an auto-ex order and brokers can have a discretionary order (the d-quote) sitting in the system that can price improve."

If only this were true.

Ray mentioned on the Feb. 6th post when I complained about constantly smacking bids and hitting offers that the d-quotes (that will be introduced in Phase IV) would help fix that problem. I tend to doubt that assertion now that I have listened to the tutorial.

Why? Because according to Mr. Flanagan, we should already be receiving price improvements via the specialist algorithims... Ray, why is this not the case? There is no specialist price improvement. Hence the current whipsawish nature of the hybrid market that we are all complaining about.

It's simple. If I buy a stock and lift the offer at 60 cents and one second later, someone sells and hits the bid at 30 cents, I've lost 30 cents in one second and I'm pissed...

If the market were properly working, those two orders should be matched around 45 cents (or thereabouts, depending on conditions).

by Chris on February 12, 2007 9:08 PM

Ray,
Another question the NYSE should try to answer is if their market is fair. An efficient market is completely transparent and competitive. Over the past few weeks I have noticed that a large amount of size is being traded through discretionary quotes and other floor broker quotes which have a book that cannot be viewed by the average trader. Is this fair? Why should floor brokers have exclusive access to these orders when they account for such a large portion of the daily volume?

You have explained several times that customers can simply just execute orders through a floor broker. Why would you add a middle man to your market? It would not be an advancement in this market for an active trader to be required to execute through a floor broker.

While orders would not fill as quickly on the old market, at least that market was relatively transparent. Bottom line is I believe the floor brokers have way too much power and their access to exclusive order flow information is not fair. This needs to be fixed...fast.

by Jason on February 14, 2007 2:23 PM

Best I can remember the specialists book has never been open to the public or any investor as doing so would simply reveal all specialist and broker interest and let the market carreen to those points. Basic market fundamentals could be thrown out the window as everyone could try to make a buck off the specialist interest. The whole issue of specialist involvment that has been occuring here seems like sour grapes. Specialists might have their ati's but its always been true that the functionality of those products wouldn't be seen until phase IV was complete. Its easy to pick on a system that hasn't been finished and point out the minor flaws but its been a phased roll out to allow specialists and brokers time to adapt and now that phase IV is almost here and complete why don't you save some of the criticism until the system is out. As to expanding the LRP's its a natural progression as specialists move to the Fast market the pauses caused by LRP wont be as needed and will stop the run to LRP we currently see from black boxes and trading desks.

by Arik on February 15, 2007 12:54 PM

Chris -- Point taken. But regarding that online tutorial, please bear in mind that it was done Oct. 3, 2006, just as Phase III was starting. Neither Bill nor anyone else at the time knew that specialists would not be matching and providing price improvement as much as expected.

As I mentioned in this subsequent post, we're reviewing the decline in specialist participation and looking to see how it may be addressed.

Thanks again for writing, Chris.

by Ray Pellecchia on February 20, 2007 12:28 PM