New York Stock Exchange floor brokers, desperate to bring blocks back to the floor, received a setback this week when they learned the exchange would not introduce vital technology until mid-year. The brokers have been clamoring for new functionality for their handheld trading devices since the advent of Hybrid a year ago.
They claim the design of the handheld is “flawed” and they need a better way to send out intermarket sweep orders (ISOs) when crossing blocks. Ben Willis, a senior floor broker at R&H Securities and a member of the exchange’s handheld committee, told Traders Magazine he had expected to be able to roll out a prototype of the new software next month.
“I was a little stunned,” he said when he learned of the NYSE’s implementation timetable. “There is a frustration. It should have been here already.”
The New York’s market share in the trading of securities listed on the exchange has been cut in half in the past year or two, largely due to the disappearance of large block trades. NYSE floor brokers largely blame this on an inability to effectively satisfy Regulation NMS trade-through requirements when crossing blocks.
Willis maintains the inability to quickly send ISO orders to away markets accounts for 25 percent of the NYSE’s loss of market share. “The single greatest impact of the Hybrid and Reg NMS has been the loss of block trades from our tape,” Willis said.
Lou Pastina, executive vice president of operations at the exchange, believes new ISO functionality will help the floor broker do more crosses, but doesn’t see it as the panacea to what ails the Big Board floor. “It is more than [crosses],” he said. “In the case where you don’t have the other side, it’s a matter of finding the other side.”
Pastina says the cross and ISO functionality will roll out late in the second quarter or in the third quarter. His group is working on integrating algorithmic trading functionality into the broker handheld, a project for which he says there is more demand.
At issue is the ability for floor brokers to print block crosses at prices inferior to those found in away markets and on the NYSE itself. Under Reg NMS, brokers must satisfy better priced automated quotes before printing their own trades.
Brokers can print crosses and satisfy away markets today on the floor, but the process involves the specialist. It is cumbersome and the brokers do not want to introduce another agent into the process.
“We want to make sure the order stays in the broker’s hand,” Willis said. “We are trying to keep the specialist out of it.”
The goal is to bring back the big block trading firms who have deserted the exchange for other venues.
“You can do it,” Willis said of the trade, “but it is not as quick as block trading desks have become comfortable with. We have to present a product to block trading houses that they can feel comfortable with and will come back and print stock on the New York.”
