Execution Quality in the NASDAQ Market

by Anshuman Jaswal, PhD, November 20, 2012
Operations/ Benchmarking
North America

Abstract

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

Price
Ranking

Market Center

 

Speed
Ranking

Market Center

1

Nasdaq BX

 

1

NYFIX Millennium

2

BATS Exchange

 

2

BATS Y-Exchange

3

BATS Y-Exchange

 

3

BATS Exchange

4

EDGA Exchange

 

4

NYSE Arca

5

EDGX Exchange

 

5

Nasdaq PSX

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

Price
Ranking

Market Center

 

Speed
Ranking

Market Center

1

Instinet

 

1

Wells Fargo Securities

2

Barclays Capital

 

2

Credit Suisse

3

Knight Capital

 

3

BofA Merrill Lynch

4

Getco Securities

 

4

Two Sigma Securities

5

Citadel Securities

 

5

Morgan Stanley

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

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

Background

4

 

Methodology

4

 

Data Used in Report

4

Caveat in Data

5

Measuring Execution Quality

6

 

Speed

6

 

Price

6

Overview of Market Data

8

 

Summary Statistics

8

Speed

12

Price

20

Ranking by Type of Market Center

27

 

Major Electronic Order Books

27

 

Major Market-Makers

27

Comparison and Ranking

29

Leveraging Celent’s Expertise

31

 

Support for Financial Institutions

31

 

Support for Vendors

31

Related Celent Research

32

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