NYSE To Trade QQQ, SPY And DIA

J

JayS

NYSE To Trade QQQ, SPY And DIA Starting On July 31

NEW YORK, July 12 -- The New York Stock Exchange will initiate unlisted trading in the three most-active exchange traded funds (ETFs) on Tuesday, July 31. They include the Nasdaq 100 Index Tracking Stock (QQQ), Standard & Poor's Depositary Receipts (SPY) and The Dow Industrials DIAMONDS (DIA).
The Securities Exchange Act of 1934 provides that securities listed on any national securities exchange may be traded by other such exchanges on the basis of unlisted trading privileges (UTP).

The NYSE will provide unique benefits in ETF trading through market making, state-of-the-art information and execution platforms of Network NYSE SM, a competitive pricing model and a dedicated customer service help desk.

Under a modified fee schedule for the UTP ETFs, the NYSE will not charge transaction fees to any constituent for the first three months of trading. Specialist firms will also waive commissions during this period. After three months, customer agency trades are expected to remain free of Exchange transaction charges, while member-firm proprietary trades and specialists are expected to be subject to competitive Exchange fees.

Specialist firm Spear, Leeds & Kellogg will be responsible for making a market in QQQ, and Bear Hunter Structured Products Trading for SPY and DIA.

 
This is an interesting topic. Unlike options ,
dual listing ETF's on the NYSE may not work for the
benefit of the trader , Here's why :

Assume the market in the QQQ is Bid 43.06 Ask 43.10 .
If I Bid 43.08 for 4000 QQQ and there is no one else
offering, the market becomes Bid 43.08 Ask 43.10. The
specialist is not obligated to "hit" my bid. The
specialist is the only "trader" , all others in the
specialist crowd are floor brokers. Unless the crowd
of "floor" brokers have orders in hand, no one will
complete my order to buy 4000 QQQ.

The AMEX is also a specialist system , but there is
also a crowd of traders in most active ETF's(QQQ,DIA
& SPY). In the QQQ on the AMEX there may be 8 other
market makers(well capitalized) competing with the
specialist. Lets assume the market on the AMEX is
also Bid 43.06 Ask 43.10 , If I go into the crowd
and Bid 43.08 for 4000 QQQ, a competing AMEX market
maker could complete my order. The reason is because
he might have a large long postion and might want to
sell ahead of the specialist , so he/she could be entilted
to sell all 4000 QQQ( not share the trade with the
specialist or other Market Makers). The trader might
work for a firm that is self clearing and might be able
to lock in a very small arbitrage descripancy(say .02)
with the QQQ Nasdaq 100 future. The fact that the AMEX
has a specialist and additional market makers work
to the advantage of the off floor trader.

Will the NYSE offer the liquidity & depth of the AMEX
ETF markets? Time will tell. I would appreciate any
comments from fellow traders.


Gene Weissman
Managing Member
Lieber & Weissman Sec., L.L.C.

 
It seems to me that with these tracking stocks already trading on ECN's such as Island, the addition of trading on another exchange such as the NYSE simply gives a trader another price and routing option for their trades. So in my account with IB, I can pull up the AMEX, NYSE and ISLD routes for the QQQ, see who's got the best price and send my order there.

Of course if you're looking to split the spread rather than go after a bid or offer, then you have to take certain things into consideration as Gene said. As he pointed out, in that case it may be best to route to the AMEX. But overall, in my opinion, it's always great to have more routing choices.
 
Well put. More routes are usually better.
However, I believe you are more likely to
get price improvement on the AMEX. The
more Market Makers in a crowd, the deeper
the "book" in ETF's. It will be interesting
to see how the NYSE handles these ETF's. The
AMEX seems to be better at derivatives &
stock baskets.


Gene Weissman
Lieber & Weissman Sec.,L.L.C.
gweissman@stocktrade.net
 
This is a good development, in my oppinion. My experience with the QQQ Amex specialist is not good. I did a couple of test market orders. Every time I got filled at the worst possible tick within the next minute. Several times it took 90 seconds to fill a market order of 100 or 200 QQQs. Other traders I have talked to, have confirmed my experience.

Market orders on the NYSE usually gets filled in seconds on highly liquid securities. If the NYSE puts a good specialist on it, my guess is that AMEX will be reduced to minor player in a very short period of time.







 

here is a link to some more info about this..

http://www.nyse.com/pdfs/1690SMB.pdf

i agree that orders routed to the NYSE will not have the same liquidity available as what is currently available on the AMEX.. of course, thats a two edged sword.. while there may not be anyone on that exchange to fill your 4000 share order at 43.08, there is also a reduced possibility that someone will step in front of you at 43.09..

another thing to consider.. the NYSE will be using NYSE Direct + to execute small orders under 1099 shares.. this is an auto-execution system that executes against the specialists book, and should be faster (avg time 2.5 seconds) than the system being used by amex(takes forever).. alot of discount brokers like mytrack and datek already use superdot for NYSE transactions and if they switch over to the NYSE it will provide alot of market orders to the market, providing fills for limit orders like the one you described..

but, who knows.. let em build it, and then we can figure a way to exploit it =)..

-good trading

-qwik
 
Alot of the AMEX stocks are not that "liquid".
Remember , this is a specialist system , not
an ECN. There is no "auto-Execution" like
hitting an ECN. If you trade the QQQ or SPY
on the AMEX ,you will get a good execution &
price improvement at times. If the AMEX is
offering QQQ at 50 for example and you Bid
50, there is no automatic matching of the
orders(like an ECN fill). The specialist
clerk or specialist must complete the order.
Trading NYSE & AMEX stocks is very different
than NASDAQ. Sometimes it seems like you are
trading in slow motion. QQQ trades over 20 million
shares per day on the AMEX(sometimes over 60
million). You will get a good fills in QQQ &
SPY on the AMEX and sometimes price improvement.


Gene Weissman
Lieber & Weissman Sec., L.L.C.
gweissman@stocktrade.net


See us at http://www.stocktrade.net
 
well, i have to admit i'm surprised by gene's comments. out of all the specialist that i've traded in the past 3 years, i would rate the qqq's specialist as the most frustrating. i don't know if he and his clerks are just overwelmed by the volume traded but my fills were horrendous. i know i would trade the qqq's if i got a fair shake, but holding cancelations for over 2 minutes just doesn't lead to big profits for the trader.
 
The primary market for the QQQ is on the
AMEX. If you are mainly trading NASDAQ
stocks and are now trading QQQ, there are
going to be some advantages & disadvantages.
If you are a daytrader or "scalper", on very
busy days , cancellations can take a while
to get an "out". This is a problem with the
specialist system in general. There is no
automatic out, like a cancel on an ECN.
Remember , all "cancels" have to be manually
cancelled by the specialists clerk's computer.
A satisfactory time for a cancel in "normal"
markets in a specialist system is 5 to 30
seconds. Remember, you are not the only
customer. In active markets like the QQQ,
fifty orders might cancel in a minute!
The specialist must manually cancel each
order(punch the cancel key for your order
in the electronic order book on the AMEX).
In the specialist system, a large order may
get more attention than a 500 share order.
A 4000 share QQQ market order can be "arbed"
against the NASDAQ future , so the specialist
and traders might handle that order before a
cancel for a small order.

In very busy markets, the specialist
could take several minutes to cancel an order.
If you are trading QQQ for a quick "scalp" on
500 shares or less, you might route your order
to ISLD(I am assuming you have a direct access
order execution system with an ISLD route). If
you are trading QQQ on a direct access order
execution system like REDI+ at Lieber & Weissman,
you might enter an order on the AMEX between
the Bid-ASK spread and get price improvement .
When the QQQ's are running I could sell my order
on ISLD and have a small trader "pay up" for
QQQ's at a higher price than the AMEX offer for
example. We have some very successful QQQ traders
at our firm, trading on the AMEX market. However,
the AMEX and specialist system has it's faults.
The 50,000,000 + shares the QQQ's often trade
shows that there must be alot of succesful traders
profiting from them or they would not be doing
that type of volume. Be aware that alot of the
QQQ volume is arbitrage related.


Gene Weissman
Lieber & Weissman Sec., L.L.C.
gweissman@stocktrade.net


See us at http://www.stocktrade.net
 
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