Celent
New York, NY, USA
July 23, 2008
Execution Quality in the Nasdaq Market
Report Published by Celent
An extensive study from Celent compares and ranks execution venues for Nasdaq stocks.
The report Execution Quality in the Nasdaq Market by Octavio Marenzi, head of Celent, and Chermaine Lee, analyst with Celent’s Securities & Investments group, examines the execution quality achieved by market centers for Nasdaq listed securities. Unlike NYSE-listed issues, there have not been remarkable improvements in the Nasdaq market centers’ average execution speeds since 2006. The most significant reduction in execution speeds was in the 500–1,999 order size for least active issues, where average speeds improved by 59%.
Comparing volumes, speed, and prices for the most active issues, a majority of the electronic order books execute close to the national best bid or offer (NBBO). Additionally, the standard deviation between the major electronic order books (EOBs) is a mere 4%. In contrast, market makers tend to have a larger disparity in price quality, with a standard deviation of 15.8%. In terms of speed, the standard deviation calculated for the major EOBs, excluding potential outlier LavaFlow, is extremely small at 0.06. Among the major market makers, it is almost 10 times larger.
As in Celent’s NYSE price rankings, BIDS Trading and Liquidnet take the top two positions, while Lehman Brothers’ (LATS) platform and BATS Trading are the fastest overall market centers. Lehman Brothers (LATS) may have maintained its excellent speed performance, but BATS Trading has leapfrogged an impressive 24 places since the last Celent study.
| Price Ranking |
Market Center |
Speed Ranking |
Market Center |
| 1 | BIDS Trading | 1 | Lehman Bros. (LATS) |
| 2 | Liquidnet | 2 | BATS Trading |
| 3 | EBX | 3 | Nasdaq MC |
| 4 | Instinet | 4 | Madoff |
| 5 | NYFIX | 5 | ArcaEx |
| Source: Celent analysis | |||
ArcaEx achieved the best prices, whereas BATS Trading regained its top speed ranking among major electronic order books. In the market maker category, ATD achieved the best prices for client orders for Nasdaq as well as NYSE-listed issues while UBS executed incoming orders at the fastest rate.
| Price Ranking |
Major EOB | Speed Ranking |
Major EOB |
| 1 | ArcaEx | 1 | BATS Trading |
| 2 | Nasdaq MC | 2 | Nasdaq MC |
| 3 | Direct Edge (ECN) | 3 | ArcaEx |
| 4 | BATS Trading | 4 | Direct Edge (ECN) |
| 5 | LavaFlow | 5 | LavaFlow |
| Source: Celent analysis | |||
| Price Ranking | Market Maker | Speed Ranking |
Market Maker |
| 1 | ATD | 1 | UBS |
| 2 | UBS | 2 | Citadel Derivatives |
| 3 | E*Trade | 3 | ATD |
| 4 | Citadel Derivatives |
4 | E*Trade |
| 5 | Knight | 5 | Knight |
| Source: Celent analysis | |||
The 40-page report contains 25 figures and seven tables. A table of contents is available online.
Members
of Celent's Securities &
Investments research
services
can download the report electronically by clicking on
the icon to the left. Non-members should contact info@celent.com
for more information.
About Celent
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 experienced 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 part of Marsh & McLennan Companies [NYSE: MMC].
Media Contacts
New York - Dana Lautin
dlautin@celent.com
Tel.: +1 646 364 8254
Paris - Muriel de Munck
mdemunck@celent.com
Tel.: +33 1 42 61 06 88
Tokyo - KyongSun Kong
kkong@celent.com
Tel.: +81 3 3596 0020
Send mail to info@celent.com with questions or comments about this Web site.