Price Vs. Speed by Don Bright
Here’s a look at the order handling of the New York Stock
Exchange versus over-the-counter equities.
Over the last few months, I’ve been following
the discussion, and even controversy, surrounding
the best way to handle equities
orders. In recent years we have seen the
evolution of customer-initiated order flow. The Internet has opened up the world of trading to Main Street, and the increase in activity has
spawned additional scrutiny into the way orders are handled.
THE SPECIALIST AND THE OTC
From a trader’s perspective, I would like to discuss one of the
two basic order-handling systems under review these days: the specialist system, which primarily means the New York Stock
Exchange (NYSE) and the American Stock Exchange (AMEX).
These exchanges differ in their way of order handling, but the
basic premise is the same. Since I am more familiar with the
NYSE, I will use that exchange for my analysis.
The other system is, of course, the OTC (over the counter)
electronic marketplace, as represented by the Nasdaq market
system. Both systems are mostly electronic, so it is a
mischaracterization to describe the debate simply as “specialist
vs. electronic.” Market makers handle nonelectronic
orders, as do specialists. However, most trades are submitted
via direct order turnaround (DOT) or an electronic communications