The New Liquidity Shift: US Equities Markets 2.0

February 13, 2009
Industry Trends
North America


New York, NY, USA February 13, 2009

Technology, new pricing models, and Regulation NMS have forever changed the US equities market structure. The result is a new pecking order as technically advanced market centers, including new upstart market makers, take share from less adaptive players.

In a new report, The New Liquidity Shift: US Equities Markets 2.0, Celent examines the evolution of US equities market structure over the past few years and highlights trends in terms of which US market centers transact the most liquidity today and where liquidity is likely to migrate in 2010 and beyond.

The US equities marketplace has undergone a fundamental transformation in the last several years. Highly successful electronic order books (EOBs), which were once challengers, are now dominant enterprises. Based on a dramatic influx of new technology and market-altering pricing models, Nasdaq MC, NYSE ArcaEx, BATS Trading, and Direct Edge, among other electronic order books, have steadily gained market share in US volume, now accounting for over 53% of share volume. Celent expects that EOBs will represent 65% of total US share volume by 2012. In addition, the transferability of the EOB concept is being accepted in Europe, where many of these same firms (Nasdaq OMX, NYSE Euronext, BATS, etc.) are engaged in a battle to create single, pan-European equities order books using similar technology and models.

Despite efforts to alter the situation, including a dramatic restructuring of US floor operations, Celent believes NYSE will not be able to stop specialists’ slow slide into obscurity (specialists are now called designated market makers or DMMs). Celent expects that by 2012 specialists/DMMs will represent only 10% of US share volume, a dramatic fall from their once high perches.

Finally, accelerated by the events of the past several months, a new breed of liquidity providers, undeterred by the market turmoil, is filling the gaps created by the departure and weakness of some of the most heralded firms on Wall Street, including well known investment banks. Some of these firms, such as Citadel Derivatives and Getco, have a growing presence in the market.

In a highly electronic and interlinked marketplace with tempting rebate incentives, these new liquidity providers will increase their clout as market-making operations thrive and expand. "The financial crisis affecting many large and formerly competitive dealers makes the evolutionary path of these new market makers that much more accelerated," says David Easthope, senior analyst with Celent’s Securities & Investments Group and author of the report.

This report examines the combined and individual Nasdaq and NYSE-listed markets in the US. Within each segment, it traces the evolution of market share for individual market centers among three basic venue types: electronic order books, exchange specialists, and market makers. In addition, the report explores market venue performance along with future trends, developments and predicted market evolution.

This 36-page report contains 17 figures and two tables. A table of contents is available online.

Members of Celent's Capital Markets research service can download the report electronically by clicking on the icon to the left.  Non-members should contact 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 February 13, 2009

The New Liquidity Shift: US Equities Market 2.0


Executive Summary 3
Introduction 4
Overall Liquidity Shifts 5
Liquidity Migration 7
Market Venue Performance 14
New US Export: European MTFs 21
Nasdaq Marketplace Evolution: Electronic Order Books Dominate 23
NYSE Marketplace Evolution: The Specialist Slide into Obscurity 27
Financial Crisis Impact to Accelerate Trends 32
Predictions: 2009-2012 34
Conclusion 36


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