The New York Stock Exchange is expanding its supplemental liquidity providers program, which now represents more trading volume than the exchange’s designated market makers.
In September, SLPs accounted for 9.5 percent of NYSE’s volume, while DMMs represented 9.1 percent. According to the Big Board, more than 90 percent of SLP volume is liquidity-adding flow, compared to 91.5 percent for DMMs.
The SLP program for market makers, which launched in November 2008, currently has six participants, with three others in the wings, said Bob Airo, senior vice president for market operations at NYSE, a subsidiary of NYSE Euronext. These firms are a second tier of market makers, which join the exchange’s five DMMs. Like DMMs, these firms have quoting obligations, but they are less rigorous than the obligations DMMs face.
Two of the three firms in the SLP approval process, Airo said, will get the green light by the end of this month. He added that several firms are also "coming online as members" that could become SLPs. Airo spoke last week at the Security Traders Association annual conference in Scottsdale, Ariz.
The six current SLPs include Spear, Leeds & Kellogg Specialists, owned by Goldman Sachs; Goldman Sachs; OCTEG, a broker-dealer owned by GETCO; Knight Equity Markets; Citadel Derivatives Group; and one other broker-dealer.
DMMs are allowed to be SLPs in names they don’t represent as DMMs. In return for agreeing to quoting obligations, SLPs get better pricing on transactions compared to other market participants. They get either 15 or 16 cents per 100 shares for liquidity-adding orders, whereas other non-DMM market participants receive a credit of 10 cents per round lot.
