Instead of executing stock at the midpoint or at the inside, a key benefit is that NYBX is aggregating liquidity across multiple price points, said Mecane. This allows someone who might be willing to pay more to buy stock across several price points, he said. If someone is willing to pay up five cents to get 50 million or100 million shares done, NYBX could aggregate liquidity across multiple price points in an exchange environment. For example, if there was an order to buy 20,000 shares at 10.02, and the NYSE has sell orders of 10,000 at $10 and 10,000 at 10.02, NYBX would aggregate the two trades on the sell side in order to pair them off against the buy side, said Mecane. Under Reg NMS, NYBX has an obligation to first take out the best prices available on other exchanges, before it could print at any price level outside of the prevailing market.
Operated as a facility of the NYSE, NYBX is jointly owned by the NYSE Euronext and BIDS. Tim Mahoney, CEO of BIDS Trading, said that people should think of NYBX as a middleman or aggregator between either BIDS orders or NYBX orders and NYSE liquidity. "It's a fully electronic mechanism that keeps track of the liquidity that's available in both venues and decides when a stock should be traded," said Mahoney. In addition, traders can place criteria on the order, such as a minimize size known as the minimum triggering volume (MTV).
BIDS is open to all broker dealers, investment managers, hedge funds and algorithms, allows access to NYBX liquidity by allowing subscribers to opt-in on an order-by-order basis. But according to TABB, while BIDS was set up to be very block"oriented the majority of the flow became algorithmic. "They're trying to get back to the block focus," said the analyst.
Mahoney, a former buy-side trader, said the idea is to serve the portfolio manager whose point in life is to outperform the market or peers. He offered the example of a portfolio manager who has an idea to invest 3 percent of the assets in a particular stock and has to trade 10-to-15 million shares. "If the average size is 200 shares, it's very hard to act quickly and take advantage of an opportunity in the public market," said Mahoney. The industry's response has been to create dark pools, said Mahoney. In fact there are 40-plus dark pools and they account for only 9 percent of the volume. While the idea of controlling information is critical, said Mahoney, he suggested that what is missing is the ability of the floor brokers to expose their reserve orders to the public market.
source: http://www.advancedtrading.com/showArticle.jhtml?articleID=213001260
