Will cash equities market-makers make a comeback in 2012?
In the past few weeks, Bats Exchange and Direct Edge have been putting pieces in place to introduce market-makers into their exchanges. The question is whether these programs will succeed in a post-Regulation NMS world after the Securities and Exchange Commission (SEC) eliminated the use of stub quotes and other practices on which market-makers once relied.
Both programs are in nascent stages. Bats Exchange filed its notice with the SEC in mid-December 2011 and Direct Edge notified clients that it had put the mechanics in place for firms to operate as market-makers. Neither has gone as far as to provide public details on planned rebate schedules.
The two programs appear to have different goals. Bats Exchange looks to use its Competitive Liquidity Provider (CLP) program as a limited liquidity incubator for the newly listed instruments. Traders will not see CLP-based rebates on liquid issues like IBM or Microsoft. Direct Edge, meanwhile, is looking to offer market-making capabilities to qualified members across the symbols traded on its exchanges.
It will be interesting to see exactly how large a rebate each exchange operator will need to offer to induce members to participate in their programs—too small, and they won’t counter-balance the level of risk firms assume as market-makers or CLP participants; too high, and the exchange operators will see these programs cutting into their profitability.
More from Sell Side Technology
Updating your subscription status
CALL-FOR-ENTRY NOW OPEN
Call-for-entry is now open for the 2nd annual Sell-Side Technology Awards 2014, which take place in New York on April 15. For more details of the criteria across the 24 award categories that recognize the leading technologies and third-party vendors in their area of expertise click here.
A fast, flexible and reliable investment decision-making process must be based on access to accurate and consistent information throughout an organization....
We have truly entered the Age of Bring Your Own Device, or BYOD. And as with every new era fuelled by innovation, the new challenges are screaming for...