The New York Stock Exchange has asked regulators to approve a plan aimed at luring investors seeking to trade in bulk -- lots of 500 shares or more.
NYSE Euronext said in a filing yesterday that it wants to start a one-year pilot for a new class of order types using minimum share sizes. Requests to buy and sell stock under the program would be hidden, a characteristic borrowed from dark pools that is designed to keep rivals from front-running orders.
NYSE’s market share has fallen as trading platforms multiplied. In particular, the exchange operator has seen volume move to venues at broker-dealer firms, many of which are dark pools. Earlier this year, executives from NYSE Euronext, Nasdaq OMX Group Inc. and Bats Global Markets Inc. met with the Securities and Exchange Commission to raise the issue. They argued that off-exchange trading, which accounts for close to 40 percent of daily volume according to data compiled by Bloomberg, widens spreads and increases volatility.
“This offers for the first time in an exchange environment the ability for institutional block-type liquidity to trade with orders of similar characteristics,” Joe Mecane, head of U.S. equities at NYSE Euronext, said in a phone interview.
The U.S. stock market is fragmentated across more than 50 venues. An SEC study published in October found that the average order size in dark pools is similar to that seen on exchanges, fewer than 400 shares per order and 232 shares for each trade.
The proposal has two order types, an Institutional Liquidity Order that would be for 5,000 or more shares with $50,000 or more market value, and an Oversize Liquidity Order, which would be orders of at least 500 shares that want to trade with the larger request. The orders will be ranked and allocated according to price then size then time of entry into NYSE’s systems, said the filing.
“The program has the potential to attract additional institutional and block trading interest to the exchange environment, and thereby improve transparency of access arrangements, priority and allocation, and fees,” NYSE said in the filing.