July 8th was like any other day for traders. They sat down in front of their screens to trade stocks at the best possible prices. Well it was not exactly like any other day because the NYSE trading system was down. The average person on the street thought this was a big deal. The news wires and bloggers made a big deal out of this as well. The fear mongers were at their peak of excitement. People were concerned what would happen to their 401K accounts and their IRAs.
It turns out we live in a new world where stocks are traded on so many different exchanges and ATSs (Alternative Trading Systems) that there is no impact in having the bastion of capital closed for over three hours. We now have eleven different stock exchanges and approximately 40 dark pools to execute trades on. Stocks listed by the NYSE can trade on all of these venues. In 2004, the NYSE had over a 90% market share on the stocks listed at their exchange. Depending on how you calculate the numbers, their market share is now closer to 23%. In 2006 there were major regulatory changes to the industry. Reg NMS was rolled out and it leveled the playing field. Orders no longer had to be solely directed to NYSE or NASDAQ depending on where the stock is listed. In fact orders must be directed to the market with the best price. If there is a better price at BATS or Direct Edge then the orders are obligated to be sent there.
There have been arguments recently that the market place is too fragmented and that we should have fewer trading venues. Days like yesterday show why there is value to that fragmentation. We believe that more venues create greater price transparency and benefits our customers.
At Lightspeed, we have access to all of the exchanges so our customers felt no impact by yesterday’s outage. We continue to build the most robust trading platform and will take every opportunity improve our customer’s experience.
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