Execution Quality in the Nasdaq Market: New Celent Report

24 July 2008

The report Execution Quality in the Nasdaq Market 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.

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.

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