Global exchange group Nasdaq OMX is launching a new price-size priority equity trading platform in the US designed to encourage more trading in larger size.
The new platform, called Nasdaq OMX PSX, will go live on 8 October and operate under the trading licence of Nasdaq OMX PHLX, formerly the Philadelphia Stock Exchange which was bought by Nasdaq OMX in 2007.
Using a price-size execution model, passive equity orders posted on PSX at the prevailing best bid or offer will be matched against incoming orders based on their size and relative to what is available on the order book. Displayed orders will be prioritised ahead of non-displayed orders.
According to the exchange, enticing more displayed orders to the public market will encourage transparency and increase the depth of the order book for customers.
“In direct response to some of the market developments this year, Nasdaq OMX is excited to launch a true market structure innovation, which will provide a different trading model for customers looking for an equity exchange that rewards size and liquidity,” said Eric Noll, executive vice president of transaction services at Nasdaq OMX.
Buy-side firms have welcomed the launch of the platform, particularly as growing fragmentation of liquidity and an increase in high-frequency trading in the US has made trading in size a more challenging task for institutional asset managers.
“In today's markets, posted liquidity and average execution size is low and the difficulty of trading large blocks of stock has increased due to challenges that have been created by developments within the US equity market structure,” said Kevin Cronin, director of global equity trading at Invesco. “Institutions need a platform to encourage posting of liquidity in today's markets. The new PSX price-size model provides an innovative solution to this challenge and comes at a crucial time.”
“The concept of a price-size model encourages participants to post larger orders and favors institutional traders who have a higher degree of conviction to secure greater liquidity with more efficient pricing,” added Mark Kuzminskas, director of equity trading at Robeco Investment Management. “This is especially important in smaller cap securities.”