Execution Quality in the NASDAQ Market

by Anshuman Jaswal, PhD, July 28, 2010
Operations/ Benchmarking
North America

Abstract

Electronic order books (EOBs) continue to dominate the NASDAQ market for the covered shares. The share of the leading EOBs, viz., Nasdaq MC, BATS Exchange, and EDGX, has gone up to 61% in 2010 from 44% in 2009, while the three leading market makers have only 14% market share.

In a new report, Execution Quality in the NASDAQ Market, Celent analyzes over 26 billion orders over the period of March 1, 2010 through May 31, 2010. In total, the report by Anshuman Jaswal, Senior Analyst with Celent’s Securities and Investments group, measures and ranks 155 market participants according to their execution speed and prices obtained for incoming orders.

Unlike last year, there is no clear leader with regard to both price and speed among the market centers. LeveL ATS, NYSE Arca, and BATS Exchange are the leading performers with regard to price. For speed, Nasdaq MC, BATS Exchange, EDGA Exchange, and NYSE Arca are the leading market centers. Hence, the EOBs seem to be better in terms of overall performance than the market centers.

Table 1 gives the best performers in the overall ranking of the market centers. Among the top market centers are Liquidnet (same as last year), LeveL ATS, and Wells Fargo Advisors. In terms of execution speed, Credit Suisse Securities, BATS Exchange, and Surge Trading were the top performers.

Table 1: Overall Ranking of Market Centers

Price
Ranking 
Market Center             Speed
Ranking 
Market Center 

 1

Liquidnet    

 1

Credit Suisse Securities

 2

LeveL ATS  

 2

BATS Exchange

 3

Wells Fargo
Advisors
 

 3

Surge Trading

 4

BNY ConvergEx  

 4

Vandham Securities

 5

Instinet  

 5

Bloomberg Tradebook

Table 2 shows the rankings for the major electronic order books (EOBs). Last year, Nasdaq MC was the leading performer across the two categories, followed by BATS Exchange. However, in 2010, LeveL ATS and NYSE Arca are leading in the price rankings for the EOBs, and BATS Exchange, NYSE Arca, and EDGA are leading the speed rankings. Across both categories, NYSE Arca, BATS Exchange, and LeveL ATS are the best performers.

Table 2: Ranking the Major Electronic Order Books

Price
Ranking 
Major EOB              Speed
Ranking 
Major EOB 

 1

LeveL ATS  

 1

BATS Exchange

 2

NYSE Arca  

 2

NYSE Arca

 3

Nasdaq MC  

 3

EDGA Exchange

 4

BATS Exchange  

 4

LeveL ATS

 5

LavaFlow ATS  

 5

EDGX Exchange

Among the market makers, the best firms according to price were ATS, UBS Securities, and E*Trade Capital. In the speed rankings, the fastest are UBS Securities, E*Trade Capital, and Knight Equity. UBS Securities continues to be the best performer across the price and speed rankings. E*Trade Capital and ATD have also performed well.

Table 3: Ranking the Major Market Makers

Price
Ranking 
Major  
Market Maker
            Speed
Ranking 
Major 
Market Maker
 

 1

ATD  

 1

UBS Securities

 2

UBS Securities  

 2

E*Trade Capital

 3

E*Trade Capital  

 3

Knight Equity

 4

Knight Equity  

 4

Citadel Derivatives

 5

Pershing  

 5

ATD

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

3

Background

7

 

Methodology

7

 

Data Used in Report

7

Caveat in Data

8

Measuring Execution Quality

10

 

Speed

10

 

Price

10

Overview of Market Data

13

 

Summary Statistics

13

Speed

18

Price

25

Ranking by Type of Market Center

33

 

Major Electronic Book Systems

33

 

Major Market Makers

33

Comparison and Ranking

34

Leveraging Celent’s Expertise

37

 

Support for Financial Institutions

37

 

Support for Vendors

37

Related Celent Research

38

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