NYSE Expands Reserve Orders To Bulk Up Share

In a bid to bring market share back, the New York Stock Exchange is expected to roll out a pilot program opening up reserve orders to the upstairs traders next month, making dark orders faster, easier and cheaper to execute. “We believe this will provide clients with greater choice and flexibility in how they access our market,” said Ray Pellecchia, spokesman.

Reserve orders allow traders to show only a portion of their order while hiding the rest, and have so far been only available through floor brokers. This is another hit to floor brokers, who are being written out of the equation. Other ECNs and exchanges have been offering the increasingly popular orders for years; about 35% of NYSE Arca and about 10% of Nasdaq OMX Group volume is associated with reserve orders.

Trading executives said the pilot would launch with 100 stocks. The exchange sent specifications to traders last week. Craig Rothfeld, executive director of WJB Capital Group, said opening up reserve orders to upstairs firms simplifies access to liquidity by circumventing floor brokers. It is standard for firms to pay floor brokers $0.0025 per share to take liquidity. A compliance officer at a large brokerage said it will save time for traders trying to find the other side for a large block and money on clearing.

Although the exchange stands to gain market share, traders say it will depend on how dark it will make the reserve orders. If specialists see reserve orders, then upstairs firms will not change their muting behavior, Rothfeld said, noting that they would not have much ofan incentive to send order flow to the exchange. Floor brokers show specialists the price at which the client is willing to trade but not the price at which the client will trade if the market forces him off his target. Giving specialists first look would let them benefit from price and size discovery, said Jamie Selway, co-founder of White Cap Trading. If the exchange requires them to show flow to specialists, it would be less likely to attract order flow. Pellechia declined to comment on what the exchange will do.

—Sabrina Willmer
Wall Street Letter