STA Responds to WSJ Letter - 'Openings'

Written by: John Giesea

22 May 2008

The Wall Street Journal

Letter to the Editor – May 22, 2008

Stocks Should Trade at Start of Day

Your article “NYSE, Nasdaq Urged to Cut Price Divergence” (Deals & Deal Makers, April 30) glosses over an issue that is important to investors, and that is the timely opening of trading in stocks in the U.S. markets each day.

Most investors in this country would make the assumption that all stocks open for trading when the market opens. This is, in fact, the case at the Nasdaq Stock Market and it is true of all other stock markets around the world. However, at the New York Stock Exchange, only 5% of the stocks listed are available to trade beginning at this country’s opening at 9:30 a.m. There is no schedule for when an NYSE stock will begin trading, and investors must wait for an undetermined period of time for a human specialist to decide when the stock should open. Meanwhile, 65% of the market in NYSE-listed stocks begins trading elsewhere. Investors haven’t shown a willingness to wait.

The Securities Traders Association has expressed that the markets should have a “coordinated opening process.” We believe that an orderly process involves opening your market on time. Nasdaq OMX invested in technology to serve investors in a fair and transparent way and we invite the NYSE to participate. A coordinated and orderly market open is at 9:30 a.m., which is the expectation of all investors. If the STA is asking all markets to step back in time to accommodate the single market in the world that doesn’t promptly open for trading, we say no thank you.

Chris Concannon
Executive Vice President
Nasdaq OMX Group Inc.
New York



To: Letters to the Editor- Wall Street Journal

From: John C. Giesea, President and CEO

Date: May 22, 2008

We feel that it is important to respond to Chris Concannon’s letter to the editor “Stocks Should Trade at Start of Day” May 22, 2008, because we believe some facts presented may be misconstrued. While many believe that speed is important in our markets most will agree that price is at least equally important. Extending the NASDAQ Opening process to non-NASDAQ stocks has forced other exchanges to speed up their own opening processes. This competition has been beneficial to investors; it has forced other venues to focus on more timely stock openings. It has also created a good deal of confusion among investors, large and small, and brokers who must decide which venues to participate in on the open and to what degree.

While as much as 65% of NYSE volume does now trade on trading venues other than the NYSE, most of the opening prints ahead of the NYSE opening are of deminimus volume (most being under 500 shares). The NYSE still commands a dominate market share in its listed stocks (the stocks that an exchange is designated as the primary exchange for) at the opening as does the NASDAQ. The reason for this continued dominance is called price discovery. The primary exchanges bring together all of the orders to buy and sell a particular stock sent to it prior to the open and matches them at the price where supply meets demand. Yes, sometimes this takes a few minutes, and sometimes more. This is the issue for some: the opening process takes too much time. To be fair, the opening process takes a few minutes no matter where your order is placed. The NASDAQ requires orders that wish to participate in their opening to be delivered to the exchange at 9:28 EDT and will only accept orders which offset any supply/demand imbalance between 9:28 and 9:30 EDT.

The STA believes that the opening is a unique and important time and price. Chris knows from direct discussions with us that we want to improve the process whatever the primary exchange, we do not want to protect any single competitive model. We believe that providing an opportunity for the most orders to participate in the price discovery process will yield the fairest price for everyone involved, and shouldn’t that be the exchanges goal also? We suggest the question is how can real price discovery be accomplished in an efficient unbiased manner. The STA has begun discussions with industry participants, including representatives of NASDAQ, to develop a set of industry-wide best practices for an efficient opening process.

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