The New York Stock Exchange will begin rolling out algorithmic trading functionality for its floor brokers over the next few weeks. The arrival of algo trading on brokers’ handheld trading devices removes a major handicap floor brokers have faced since the NYSE began going auto-ex in 2006.
The NYSE is launching this algo initiative “so floor brokers can be competitive with all market participants,” said Michael Rutigliano, vice president and broker liaison at the exchange. The algos for floor brokers, engineered over several months by Pragma Financial Systems, offer parity and pegging functionality.
The four core Pragma algos are volume-weighted-average-price, percentage-of-volume, arrival price and adaptive strategies. Floor brokers can set aggression-level and time parameters within these strategies. They can continue to peg their orders to the NYSE best bid or offer or, now, benchmark strategies to the NBBO (national best bid or offer).
Richard Rosenblatt, an executive floor governor at the NYSE and founder of institutional broker Rosenblatt Securities, one of the two firms currently testing the new algorithms, believes the algos will help floor brokers represent their clients electronically better than they previously could have. “The algos will, for the first time, give agents a functionality they never could have had manually,” he said. What floor brokers are gaining, he added, is the ability to represent orders at multiple price points and participate in more volume.
The individual orders sent out by these algos will be e-Quotes, which means they will have trading parity on the NYSE. Algos sent to the exchange from off-floor don’t have parity and must wait in line to execute if they’re at the same price. The NYSE’s parity rules dictate how incoming marketable orders are allocated.
“Algos on the handhelds will be a nice complement to the tools we already have,” said Donato J. Cuttone, vice chairman of institutional broker Cuttone & Co. “The parity feature of NYSE algos is a fantastic advantage.” He added that floor brokers, to be competitive in a fragmented listed market, must now use all of the tools available on their handhelds to access the NYSE, as well as additional tools from their booths to trade in other venues.
Upstairs brokers already use algos to access the New York market. Floor brokers, who now represent only 6 percent of NYSE volume, down from double digits two years ago, can use third-party algos to access the NYSE as well as other market centers from their booths. However, floor brokers thus far haven’t been able to send out algorithmic orders from their handhelds–which is their primary trading tool.
The new algos will, effectively, relegate the CAP, or convert-and-parity, orders floor brokers currently use to go along with NYSE volume to the scrapheap of Hybrid history. The CAP orders are widely considered ineffectual by floor brokers.
Pragma, a quantitative technology firm that provides algos mainly to brokers, was contracted earlier this year to devise these algos. The NYSE, meanwhile, launched an algo committee of high-frequency algorithmic users from the floor to help guide the process. The brokers gave Pragma feedback about “tailoring the algos to the special requirements of the floor broker community,” said David Mechner, president of the New York-based Pragma.
A Pragma team of technologists worked on the design, integration and testing of the algorithms over the past few months. The algos will be available to floor broker members of the algo committee over the next week or so. Within several weeks, they should be available to all floor brokers on their handhelds, according to the exchange. The NYSE expects to supplement the slate of Pragma algos with algos from another firm later this summer.
