Execution Quality in the NASDAQ Market

Electronic order books (EOBs) continue to dominate the NASDAQ market for covered shares. Together, the EOBs control around 82% of the market. The share of market makers has declined to 17%.

The share of the three leading EOBs (Nasdaq MC, EDGX Exchange, and BATS Exchange) has fallen from 51% in Celent’s last survey to 48% in the current one. The share of the three leading market makers has also declined from 22% to only 14%.

In a new report, Execution Quality in the NASDAQ Market, Celent analyzes over 12 billion orders over the period of July 1, 2012 to September 30, 2012. In total, the report by Anshuman Jaswal, senior analyst with Celent’s Securities & Investments group, measures and ranks 155 market participants according to their execution speed and prices obtained for incoming orders.

BATS Exchange, NYSE Arca, and BATS Y-Exchange are the leading NASDAQ venues. Some of the other leading market centers include EDGA Exchange, Nasdaq BX, and Nasdaq PSX. Like earlier surveys, different types of market centers, such as market-makers and electronic order books, continue to be grouped in clusters, as indicated by the color coding. It is noteworthy that the overall performance of the market centers is much more varied than in previous surveys.

The overall ranking for electronic order books in NASDAQ is shown in Table 1. The major electronic order books in terms of price improvement are Nasdaq BX, BATS Exchange, and BATS Y-Exchange. For average speed of execution, the leading EOBs are NYFIX Millennium, BATS Exchange, and BATS Y-Exchange. Across the two best execution parameters, the leading firms are the BATS Exchange and BATS Y-Exchange.

Table 1: Ranking the Major Electronic Order Books

Comparing the market-makers in Table 2 for price improvement, Instinet, Barclays Capital, and Knight Capital are the best firms. Similarly, Wells Fargo Securities, Credit Suisse, and BofA Merrill Lynch are the best performers when we compare the average execution speeds.

Table 2: Ranking the Major Market-Makers

This 36-page report contains 25 figures and seven tables.