- New changes revealed to get more stocks trading at 9:30 a.m.
- Electronic market makers like Citadel rule the historic floor
Citadel Securities only recently set up shop on the floor of the New York Stock Exchange, but it’s already pushing for changes.
Unlike its two main rivals in stock trading, Nasdaq Inc. and Bats Global Markets Inc., getting shares open for the day at the NYSE is a partly manual process. The perils of that approach were underscored on Aug. 24, when hundreds of NYSE-listed securities didn’t immediately open at 9:30 a.m. amid a surge in volume, causing confusion and spurring wild price swings.
Citadel Securities, one of a handful of firms that manages trading at the floor, told brokers in a town hall-style meeting Thursday afternoon that it wants to get more shares going right at 9:30 a.m. To do that, it will significantly reduce its use of an NYSE floor convention that lets brokers request a delay in a stock’s opening. Although U.S. stocks trade on 12 exchanges and dozens of private platforms, the opening auction at NYSE remains a key moment of the day where a huge chunk of shares change hands.
“Opening all stocks on time is a big priority for us because it ensures price discovery for NYSE-listed issues happens on the exchange, and results in the entire market working more efficiently,” Jamil Nazarali, head of execution services at Citadel Securities, said in a phone interview. Citadel Securities is part of billionaire Ken Griffin’s hedge-fund operator, Citadel LLC.
Stalled openings at NYSE have come under fire from rival exchanges and other market players. BlackRock Inc. said in an analysis that delayed openings in NYSE-listed stocks contributed to the turmoil on Aug. 24, as exchange-traded funds began trading before some of their underlying stocks. A group advising the U.S. Securities and Exchange Commission on how to improve equity markets is looking at the issue of delayed opens too, Convergex Inc. CEO Eric Noll, a member of the committee, said at an industry conference hosted by Sandler O’Neill & Partners LP earlier this month.
Citadel Securities is responsible for about 1,500 stocks at the floor, a role it took on in May by purchasing a KCG Holdings Inc. division. In its new crusade, Citadel Securities will limit its use of “broker holds,” which let brokers delay the opening of a NYSE stock if they’re trying to place a large order for a customer -- in theory to stabilize prices.
Stacey Cunningham, chief operating officer of NYSE Group Inc., said the exchange is working with all of its floor trading businesses, known as designated market makers, to balance timely opens with ensuring stocks are correctly priced. NYSE Group is a division of Intercontinental Exchange Inc.
“Our model is strictly focused on automating where appropriate and leveraging the experience and expertise of our designated market-makers where appropriate,” Cunningham said.
Broker holds accounted for about 25 percent of the times Citadel Securities couldn’t get a stock trading immediately at 9:30 a.m., according to data it analyzed from May. The firm also, 89 percent of the time, got stocks going within 3 seconds of 9:30 a.m. in May, an improvement from KCG’s 80 percent rate in April, NYSE data showed.
Citadel Securities’ change may set a model for peers. It’s one of four automated trading firms that dominate the business of overseeing shares at the NYSE floor, a group that includes Virtu Financial Inc., Global Trading Systems LLC and IMC Financial Markets.