Execution Quality in the NASDAQ Market

Electronic order books (EOBs) dominate the NASDAQ market for the covered shares. Together, the EOBs control more than 80% of the market.

Interestingly, the share of the three leading EOBs (Nasdaq MC, BATS Exchange, and EDGX Exchange) has declined from 61% in the last survey to 46% in the current one. However, the three leading market makers have not improved their performance much and have a combined share of 14%.

In a new report, Execution Quality in the Nasdaq Market, Celent analyzes over 28 billion orders over the period of June 1, 2011 to 31 August, 2011. 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.

Table 1 gives the overall rankings for the leading venues of the NASDAQ issues. The best performers in the price rankings among the top market centers are UBS Securities, Citadel Securities, and Knight Equity. This shows an improved performance for the market makers since the last survey. In terms of execution speed, BATS and BATS Y-Exchanges, PDQ ATS, and Morgan Stanley were the top performers.

Table 2 shows the rankings for the major electronic order books (EOBs). Comparing the major electronic order books for price improvement, we find that the best EOBs are NYSE Arca, EDGA Exchange, and the two BATS exchanges. For average speed of execution, the leading EOBs are the two BATS exchanges and NYSE Arca. Across the two best execution parameters, the leading EOBs are the NYSE Arca, EDGA Exchange, and the two BATS exchanges.

UBS Securities, Citadel Securities, and Knight Equity are the best market makers when we compare price execution. Similarly, Citadel Securities, Knight Equity, and UBS Securities are the best performers when we compare average execution speeds. Overall, Citadel Securities, Knight Equity, and UBS Securities are the leading market makers on the two best execution parameters.