Market makers are more effective than electronic order books in delivering price improvement on Nasdaq-listed stocks, according to a new report by financial research and consulting firm Celent.
Market makers were found to achieve price improvement for more than 60% of orders for the 100 most active stocks, while electronic order books only did so for about a fifth. The findings are published in ‘Execution Quality in the Nasdaq Market’, a new Celent study comparing and ranking market centres for execution quality in Nasdaq-listed stocks.
By comparing trading volumes, speed and prices for the most active issues, the research found that over 80% of the electronic order books executed close to the national best bid and offer (NBBO) benchmark. The study also found that electronic order books and market makers have almost doubled their improvement rate of incoming order prices since 2006.
In the overall ranking of electronic order books that trade Nasdaq-listed securities, US-based electronic communications network BATS Trading, was identified as the fastest electronic order book, while NYSE Arca achieved the best prices. Investment bank UBS was found to execute incoming orders at the fastest rate of any market maker.
The research was based on data collected between December 2007 and February 2008, representing 15.9 billion orders and 176 market participants. Speed of execution and prices achieved were the underlying factors behind Celent’s methodology.