Execution Quality in the NASDAQ Market

by Anshuman Jaswal, PhD, May 20, 2011
Operations/ Benchmarking
North America

Abstract

Electronic Order Books (EOBs) dominate the NASDAQ market for covered shares, controlling more than more than 80% in terms of market share. Nasdaq MC, BATS Exchange, and EDGX Exchange, which are the three leading EOBs, control 61% market share, while the three leading market makers have only 17% market share.

In a new report, Execution Quality in the NASDAQ Market, Celent analyzes over 21 billion orders over the period of December 1, 2010 through February 28, 2011. In total, the report by Anshuman Jaswal, Senior Analyst with Celent’s Securities & Investments Group, measures and ranks 155 market participants according to their execution speed and prices obtained for incoming orders.

The top firms in Nasdaq performed consistently across both average execution speed and price improvement. The leading market centers are BATS Exchange, EDGA Exchange, Nasdaq MC, EDGX Exchange, BATS Y-Exchange, and NYSE Arca.

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 BNY ConvergEx, LeveL ATS, and NYSE Arca. In terms of execution speed, BATS Y-Exchange, NSX, and Track ECN were the top performers.

Table 1: Overall Ranking of Market Centers

Price Ranking

Market Center 

 

Speed Ranking 

Market Center 

1

BNY ConvergEx

 

1

BATS Y-Exchange

2

LeveL ATS

2

NSX

3

NYSE Arca

3

Track ECN

4

EDGX Exchange

4

EDGA Exchange

5

EDGA Exchange

5

BATS Exchange

Source: Celent analysis

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, EDGX, and EDGA exchanges. For average speed of execution, the leading EOBs are EDGA and BATS Exchanges and Nasdaq MC. Across the two best execution parameters, the leading EOBs are the EDGA, EDGX, and BATS exchanges.

Table 2: Ranking the Major Electronic Order Books

Price Ranking

Major EOB 

 

Speed Ranking

Major EOB

1

NYSE Arca

 

1

EDGA Exchange

2

EDGX Exchange

2

BATS Exchange

3

EDGA Exchange

3

Nasdaq MC

4

BATS Exchange

4

EDGX Exchange

5

Nasdaq MC

5

NYSE Arca

Source: Celent analysis

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

Table 3: Ranking the Major Market Makers

Price Ranking

Major Market Makers

 

Speed Ranking

Major Market Makers

1

ATD

 

1

Knight Equity

2

Knight Equity

2

UBS Securities

3

UBS Securities

3

Pershing

4

Pershing

4

Citadel Derivatives

5

Citadel Derivatives

5

E*Trade Capital

Source: Celent analysis

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 subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
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Table of Contents

Executive Summary

3

Background

7

 

Methodology

7

 

Data Used in Report

7

Caveat in Data

9

Measuring Execution Quality

11

 

Speed

11

 

Price

11

Overview of Market Data

14

 

Summary Statistics

14

Speed

20

Price

28

Ranking by Type of Market Center

36

 

Major Electronic Order Books

36

 

Major Market Makers

36

Comparison and Ranking

37

Leveraging Celent’s Expertise

40

 

Support for Financial Institutions

40

 

Support for Vendors

40

Related Celent Research

41

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