The New York Stock Exchange, in a departure, now offers rebates to providers of liquidity on its book—as long as they are NYSE floor brokers.
Beginning Monday, the Big Board started paying floor brokers 4 cents per hundred shares for those limit orders they post on the NYSE’s OpenBook. The offer is good for orders placed on the book by floor brokers only. Outside traders do not qualify. One senior floor broker, who took a straw poll on the floor, estimated that about 5 percent of all liquidity on OpenBook is provided by floor brokers. An NYSE spokesman said the exchange couldn’t break out the percentage of OpenBook orders by the type of participant.
Paying for liquidity is standard at every other exchange and ECN, including NYSE Arca, but not at the New York. Prior to this pricing change, no liquidity providers on the New York received a rebate for providing liquidity, while all takers paid 8 cents per hundred shares. Most other venues typically pay a rebate of at least 20 cents per hundred shares.
The NYSE began paying floor brokers for liquidity for two reasons, the New York told the Securities and Exchange Commission in a filing. First, due to technological limitations, floor brokers are unable supply liquidity to other venues and reap their rebates. That places them at a disadvantage vis-a-vis some of their competitors, the New York said.
Second, the floor brokers play a valuable role in keeping the exchange floor a viable place to trade. The rebate will allow them to remain competitive on the floor as well, the New York noted.
Craig Rothfeld, executive director of WJB Capital Group, an upstairs institutional broker with a floor presence, says he doesn’t see the new rebate changing his firm’s behavior as far as where it posts its quotes. However, “I’m happy to take it,” he says. He still believes that the floor offers its greatest value at the open, close and when news drives a stock’s trading, such as blow-up situations.
