Execution Quality in the Nasdaq Market

July 23, 2008


New York, NY, USA July 23, 2008

An extensive study from Celent compares and ranks execution venues for Nasdaq stocks.

The report 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. 

Table 1: Overall Ranking of Market Centers
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.

Table 2: Ranking the Major Electronic Order Books
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
Table 3: Ranking the Major Market Makers
Price Ranking Market Maker Speed Ranking Market Maker
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.  

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 based 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 a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
Tel: +1 212 345 1366

Europe (London)
Chris Williams
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
Tel.: +81 3 3500 3023

Table of Contents

New York, NY, USA July 23, 2008

Executive Summary 3
  Background 4
  Methodology 4
  Data Used in Report 4
Caveats About Data 5
Measuring Execution Quality 7
  Speed 7
  Price 8
Overview of Market Data 10
  Summary Statistics 10
Speed 15
Price 24
Ranking by Type of Market Center 34
  Major Electronic Order Book Systems 34
  Major Market Makers 35
Comparison and Ranking 36


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