Real World  |  JUL 2004

Price Vs. Speed by Don Bright

Price Vs. Speed by Don Bright Here’s a look at the order handling of the New York Stock Exchange versus over-the-counter equities. Over the last few months, I’ve been following the discussion, and even controversy, surrounding the best way to handle equities orders. In recent years we have seen the evolution of customer-initiated order flow. The Internet has opened up the world of trading to Main Street, and the increase in activity has spawned additional scrutiny into the way orders are handled. THE SPECIALIST AND THE OTC From a trader’s perspective, I would like to discuss one of the two basic order-handling systems under review these days: the specialist system, which primarily means the New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX). These exchanges differ in their way of order handling, but the basic premise is the same. Since I am more familiar with the NYSE, I will use that exchange for my analysis. The other system is, of course, the OTC (over the counter) electronic marketplace, as represented by the Nasdaq market system. Both systems are mostly electronic, so it is a mischaracterization to describe the debate simply as “specialist vs. electronic.” Market makers handle nonelectronic orders, as do specialists. However, most trades are submitted via direct order turnaround (DOT) or an electronic communications network (ECN).

by Don Bright