From Scott Cutler: Secondary offerings by publicly listed companies have raised over $176 billion on the NYSE so far this year, proving that there is plenty of cash on the sidelines that wants to be put to work. This healthy appetite has also created the most vibrant IPO market in the last two years. So far, $7 billion has been raised on the NYSE through initial public offerings (and another $1.5 billion on Nasdaq), with six companies debuting last week, another nine expected over the next two weeks and the pipeline for the next three quarters as strong as we’ve seen it in at least a couple of years.

As different as this feels from last year at this time, it is by no means a walk in the park for companies looking to go public. Every new listing is being watched carefully by investors for solid fundamentals, in-line pricing and good execution by the company. In 2007, two thirds of all IPOs missed on earnings expectations during their second quarter after coming to market. After all investors have been through in the last two years, that is not something they are willing to forget. New companies are expected to have solid track records, consistent growth year over year and to be a part of growing industries. For those types of companies, the capital markets are open.

We congratulate all of the companies that recently debuted as public companies on the NYSE successfully (SEM, ART, EM, ARI, CLNY, CXS, STWD) and look forward to welcoming many more over the next weeks, including one that could end up the world’s largest IPO of 2009.

From Feargal O’Sullivan, Managing Director, High Performance Messaging at NYSE Technologies:

We at NYSE Technologies have long been proud of our status in the industry as the leading provider of infrastructure for low-latency trading, and this is backed up by our latest news. Last week at the Intel Developer’s Forum 2009 in San Francisco, we demonstrated a complete, North American Equities and Options trading system in a single box — in a brand-spanking new, Intel Nehalem 32-core box to be exact.

Toward the end of August, our partners at Intel provided us with a quad-socket server filled with eight-core CPUs. It was an alpha version of the new Nehalem chips and we are one of the very few companies they feel can push a server like this to the limit… and boy, did we! We ran four of our ultra-low-latency Market Data Platform V5 feed handlers, eight of our Universal feed handlers, a mock Smart Order Router and two of our Market Access Gateways, all linked by NYSE Technologies Data Fabric messaging using its Local Direct Memory Access (LDMA) transport. We pushed raw market data over 2GigE cross-over cables to the 32-core sever but only used 24 of those cores to process the feeds, make trading decisions, and send the orders to the (mock) market.

That’s a complete trading system in a box — running on a standards-based platform with the flexibility and speed of software development to allow for rapid changes and broad developer support. So, go and check out the demo for yourselves; it’s embedded above and also currently available on the Intel Channel of YouTube.

Note that while the performance was intentionally limited, due to the alpha status of the 8-core CPUs, we are expecting a beta version of the server this week which should be much closer to production release speed. We are going to rebuild the demo on that server so we can show it again at the FIA Options Conference in Chicago on October 20-22.

Come and see us if you’re attending and get ready for a revolution in high-performance trading.

Sincerely,
Feargal

P.S. I’ll post again later this week with details of the RDMA pub/sub demo we also showed at IDF2009.

“In June, the Obama Administration proposed a new regulatory framework for financial markets that should have kicked off a vigorous debate over the future of financial regulation. Yet, until the President’s recent Wall Street speech, the sense of urgency to pursue reform seemed to be abating. Now is the time to take action.”

So says NYSE Euronext CEO Duncan Niederauer in an op-ed in the Wall Street Journal.

Among other things, Duncan calls for:

• Harmonizing the regulation of equities and derivatives at the SEC and CFTC;

• Appointing the Fed as the systemic risk regulator;

• Bringing certain standardized derivatives contracts into a transparent trading environment;

• Walking away from “over-regulation” ideas such as a stock-transaction tax.

Now would be a good time to unfreeze some of the positive reform proposals that have become stalled in Washington, D.C., Duncan says, concluding:

“We cannot claim that we have learned the lessons from last year’s events until we have truly responded. We are at a critical juncture in the history of our financial markets. The crisis created a once-in-a-generation opportunity to modernize our outdated financial regulatory structure. We cannot let this opportunity pass.”

“In June, the Obama Administration proposed a new regulatory framework for financial markets that should have kicked off a vigorous debate over the future of financial regulation. Yet, until the President’s recent Wall Street speech, the sense of urgency to pursue reform seemed to be abating. Now is the time to take action.”

So says NYSE Euronext CEO Duncan Niederauer in an op-ed in the Wall Street Journal.

Among other things, Duncan calls for:

• Harmonizing the regulation of equities and derivatives at the SEC and CFTC;

• Appointing the Fed as the systemic risk regulator;

• Bringing certain standardized derivatives contracts into a transparent trading environment;

• Walking away from “over-regulation” ideas such as a stock-transaction tax.

Now would be a good time to unfreeze some of the positive reform proposals that have become stalled in Washington, D.C., Duncan says, concluding:

“We cannot claim that we have learned the lessons from last year’s events until we have truly responded. We are at a critical juncture in the history of our financial markets. The crisis created a once-in-a-generation opportunity to modernize our outdated financial regulatory structure. We cannot let this opportunity pass.”

From Todd Wilemon: Excellent news from the SEC: they just approved the expansion of the penny pilot program for options. Currently the penny pilot program has 63 names being quoted in pennies. The SEC has approved adding 300 of the most actively traded, multiply listed options classes to the program. Woo-hoo!

Maybe I ought to have warned you to be sitting down before you read that last paragraph. What this means for the average investor and market participant is the spread between the bid and offer of an option will be reduced, thus lowering the cost of the option. It will also increase transparency and price discovery in the options markets. Investors and traders win!

An important reminder: all option classes in all names can already trade in pennies if the order is exposed to a price-improvement auction or if an exchange chooses to trade with hidden liquidity, known as dark pennies. By expanding the program, the SEC has allowed traders and market makers to post their true markets for all market participants to see and trade. Transparency of quoted markets is a foundation of a fair and orderly market. The best advertising for traders is their displayed markets. All together now, “Let the sunshine, let the sunshine in…” Sorry, but on such momentous news, I get a little carried away.

The 300 new names will be added in a phased-in approach of 75 names each quarter over four successive quarters starting on Oct. 26, 2009 and continuing on Jan. 25, April 26, and July 26, 2010. The option classes added each quarter will be based on average daily volume in the prior six calendar months immediately preceding their addition to the program.

Don’t worry about figuring out the names to be added; we will do that for you. We will announce the new additions by Regulatory Bulletin and by publishing the information on our Web site, in addition to submitting a filing with the SEC.

The minimum variation for all classes to be included in the pilot, except for the QQQQ, will continue to be $0.01 for all quotations in option series that are quoted at less than $3.00 per contract and $0.05 for all quotations in option series that are quoted at $3.00 or greater. Options on QQQQ will continue to be quoted in $0.01 increments for all series.

“Representing over 85% of the overall volume in U.S. options, this expansion of the penny pilot offers many benefits to the investing public, including increased transparency, improved price discovery and reduced spreads,” said Paul Finnegan, Senior Director, NYSE Euronext U.S. Options. Penny pricing allows flexibility to investors and traders to compete and determine the natural spread for each security independently.

Ed Boyle, VP of US Options, NYSE Euronext has warned before, “If we destroy transparency in the options market, we could see the industry shrink and it could ultimately disappear.” By enlarging the penny pilot program, the SEC has made a huge step forward in the growth and transparency of options markets.

We also have in place a procedure to replace any pilot option class that is delisted with the next most actively traded, multiply listed class that is not already in the pilot. We will do this semi-annually, on the second trading day following Jan. 1, 2010 and July 1, 2010.

One last thing: only options on securities and indexes priced under $200 at the close of trading on the expiration Friday prior to being added to the pilot are eligible..

Transparency, a level playing field (no favorites here) and price discovery make the NYSE Arca and NYSE Amex the places to trade options!

Trade ‘em up!

TW

From Todd Wilemon: Excellent news from the SEC: they just approved the expansion of the penny pilot program for options. Currently the penny pilot program has 63 names being quoted in pennies. The SEC has approved adding 300 of the most actively traded, multiply listed options classes to the program. Woo-hoo!

Maybe I ought to have warned you to be sitting down before you read that last paragraph. What this means for the average investor and market participant is the spread between the bid and offer of an option will be reduced, thus lowering the cost of the option. It will also increase transparency and price discovery in the options markets. Investors and traders win!

An important reminder: all option classes in all names can already trade in pennies if the order is exposed to a price-improvement auction or if an exchange chooses to trade with hidden liquidity, known as dark pennies. By expanding the program, the SEC has allowed traders and market makers to post their true markets for all market participants to see and trade. Transparency of quoted markets is a foundation of a fair and orderly market. The best advertising for traders is their displayed markets. All together now, “Let the sunshine, let the sunshine in…” Sorry, but on such momentous news, I get a little carried away.

The 300 new names will be added in a phased-in approach of 75 names each quarter over four successive quarters starting on Oct. 26, 2009 and continuing on Jan. 25, April 26, and July 26, 2010. The option classes added each quarter will be based on average daily volume in the prior six calendar months immediately preceding their addition to the program.

Don’t worry about figuring out the names to be added; we will do that for you. We will announce the new additions by Regulatory Bulletin and by publishing the information on our Web site, in addition to submitting a filing with the SEC.

The minimum variation for all classes to be included in the pilot, except for the QQQQ, will continue to be $0.01 for all quotations in option series that are quoted at less than $3.00 per contract and $0.05 for all quotations in option series that are quoted at $3.00 or greater. Options on QQQQ will continue to be quoted in $0.01 increments for all series.

“Representing over 85% of the overall volume in U.S. options, this expansion of the penny pilot offers many benefits to the investing public, including increased transparency, improved price discovery and reduced spreads,” said Paul Finnegan, Senior Director, NYSE Euronext U.S. Options. Penny pricing allows flexibility to investors and traders to compete and determine the natural spread for each security independently.

Ed Boyle, VP of US Options, NYSE Euronext has warned before, “If we destroy transparency in the options market, we could see the industry shrink and it could ultimately disappear.” By enlarging the penny pilot program, the SEC has made a huge step forward in the growth and transparency of options markets.

We also have in place a procedure to replace any pilot option class that is delisted with the next most actively traded, multiply listed class that is not already in the pilot. We will do this semi-annually, on the second trading day following Jan. 1, 2010 and July 1, 2010.

One last thing: only options on securities and indexes priced under $200 at the close of trading on the expiration Friday prior to being added to the pilot are eligible..

Transparency, a level playing field (no favorites here) and price discovery make the NYSE Arca and NYSE Amex the places to trade options!

Trade ‘em up!

TW

I’ve been kind of busy lately to post very often. (Curse you, day job, but don’t ever leave me!) Anyway, from my clipboard, here are some recent notable quotes on high-frequency trading (HFT):

Being smarter and faster than your competitors, whatever your business, has been a guiding principle of companies worldwide for decades. So why are these ideas suddenly thrown out when it comes to high-frequency trading models that have been around for nearly a decade?
– Kevin McPartland, Senior Analyst, The Tabb Group, in Waters magazine, “Competitive Edge or Unfair Advantage?”

Two areas high-frequency shops aren’t too worried about are flash orders and dark pools. Several panelists said high-frequency firms don’t interact much with flash orders and aren’t bothered that the SEC may eliminate them.

The firms also aren’t too concerned about the prospect of new regulations around dark pools. If anything, they said, they welcome rules that would push more orders into the public markets.
– Nina Mehta, Traders magazine, “High Frequency Traders Strike Back”

But in my view, the [New York Times] article ended up conflating flash orders and high-frequency trading in ways that would confuse a general reader. Instead of noting that some HFT firms incorporate information from flash orders into their data and strategies, the article joined the two at the hip.

Flash orders clearly deserve attention. High-frequency trading, and the effect this trading activity may have on markets, deserves closer attention. Other market-related issues tossed into this melee also deserve attention. But when a conversation starts out as a shouting match, there’s nothing to do but pick sides.
– Nina Mehta (yes, again — no journalist has covered the subject more closely) this time in Columbia Journalism Review (from August but still readworthy if you haven’t seen it)

We too have been trying to get more facts out there, with posts by my colleague Steven Poser here (about how HFT helps narrow spreads in large-cap stocks) and here (about how designated market makers make a difference in smaller-cap stocks, which are not traded as heavily by high-frequency types).

More to come on this topic, as you know.

Gotta go now and get back to my National Punctuation Day celebratory activities. Checking on my Official Meat Loaf of National Punctuation Day, which is in our little microwave down the hallway. Shall I save you a slice? And have you checked out Dan Labovitz’s favorite punctuation mark, or Rick Farber’s? And I would talk about aposiopesis but–

NYSE Euronext earlier this week filed a comment letter with the Securities and Exchange Commission on the SEC’s proposed amendments to Regulation SHO. Translation: here’s our point of view on restricting short selling.

The letter is 10 pages of reasoned analysis of the various alternatives the SEC put forward in its proposal. Recommended reading. For the benefit of those without the time or the attention span, the letter concludes with this:

Conclusion

NYSE Euronext applauds the Commission for its ongoing leadership and careful consideration of how to properly regulate short sales, and appreciates that none of the options is perfect. Nevertheless, we strongly believe that an always-on bid test is a known commodity (since it was in place for a number of years) and would therefore be easiest to implement and apply. Moreover, we believe it represents the best balance between restrictions and operability, and would therefore promote public confidence without unduly inhibiting legitimate short-selling. An alternative uptick rule, by contrast, would unduly restrict legitimate short-selling to the detriment of the market. In the event that the Commission nonetheless concludes that an alternative tick test is the most appropriate regulatory approach to short selling, it is essential that rule be paired with a circuit breaker approach and appropriate exemptions, so that there is a more appropriate balance between restrictions and operability.

The comment period on the SEC proposal closed on 21 Sept., but mine is always open, in the comment box below.

And on a slightly less-serious note, tomorrow is National Punctuation Day! Ah, punctuation, an increasingly disregarded but nonetheless critical component of good writing and clear expression. To celebrate, let me know your favorite punctuation mark (I’ve always been partial to the question mark, myself) or try out this recipe for the Official Meat Loaf of National Punctuation Day. Yes, National Punctuation Day has an Official Meat Loaf. Enjoy — exclamation point!

From my colleague Steven Poser in our Strategic Market Analysis team:

NYSE Arcavision provided data for the 16-September-2009 article in the Wall Street Journal, which showed that quoted spreads are at their historically narrowest levels in Russell 1000® issues. The article noted that small-cap issues, as measured by the Russell 2000®, have not achieved similar spread narrowing, because high-frequency trading is not as prevalent in small-cap issues. We found a similar result for low-volume versus high-volume stocks, after adjusting for periods with similar volatility, in this Exchanges blog post.

It’s worth noting that high-frequency trading or no high-frequency trading, stocks listed on the NYSE and on NYSE Amex have their own designated market makers (DMMs), whose job functions include providing liquidity in issues assigned to them. These obligations are met via depth guidelines, as well as a incentive-based quoting standards to post prices at the best price throughout the trading day.

The NYSE continues to monitor and incent the DMMs to actively provide liquidity in issues across the market capitalization spectrum. New quoting standards added in September are yielding favorable results. In smaller-cap issues, NYSE DMMs provided the best price 48% of the time, and executed 10.1% of NYSE volume in those symbols. NYSE Amex DMMs were at the best price 57% of the time, and accounted for 12.1% of NYSE Amex volume in sub-$500mn market-cap issues.

NYSE and NYSE Amex also trade using a parity model. This means that our DMMs cannot trade ahead of you, just because they are on our floor. Orders on the book share in executions with DMMs and the floor. So you don’t have to be first to get an execution.

The parity model, coupled with DMM responsibilities means there is no better place to send your order for an issue listed on the NYSE or NYSE Amex. Compare our quoted spreads to other exchanges that try to compete with us.

As shown in the tables below, quoted spreads on NYSE and NYSE Amex are much narrower in smaller-cap issues than other exchanges.

Click image to enlarge.

Chef Duff and friend rock out on the Bell Podium

On Monday, Sept.14, Chef Duff Goldman of Food Network’s “Ace of Cakes” (NYSE:SSP) took a break from his usual routine of baking up outrageous creations to visit NYSE and ring The Opening Bell.

Chef Duff, best known for using out-of-the-ordinary techniques such as blow torches and unusual flavors, specializes in cake designs that are truly unique and one-of-a-kind. In fact, this past weekend Chef Duff and fellow members from Charm City Cakes made a special delivery to our own CEO Duncan Niederauer, who recently celebrated his birthday. The birthday cake was designed to resemble the NYSE building and included exact details right down to the columns and facade. The creation of the cake, along with Duff’s visit at NYSE will appear on an upcoming episode of “Ace of Cakes” airing on The Food Network Thursdays at 10pm/9c.