Deviations from Time Priority on the NYSE

43 Pages Posted: 3 Jan 2019

See all articles by Robert H. Battalio

Robert H. Battalio

University of Notre Dame - Department of Finance

Robert H. Jennings

Indiana University - Kelley School of Business - Department of Finance

Bill McDonald

University of Notre Dame - Mendoza College of Business - Department of Finance

Date Written: December 17, 2018

Abstract

Most financial security trading venues prioritize competing liquidity providers with price-time priority; entities displaying the best-priced limit order earliest trade with the next opposite-sided liquidity-demanding order. The New York Stock Exchange (NYSE) rule putting traders “on parity” is a vestige of the traditional floor-based trading model and favors floor-based traders. Parity requires that orders from floor brokers, the designated market maker, and the top of the electronic limit order book trade together. That is, floor trading interests can trade ahead of equally priced, previously arriving orders in the limit order book. The NYSE posits that floor traders provide valuable services to the investing public and one approach to remunerating them for these services is deviating from strict time priority. The cost of the potential benefits of the NYSE’s business model is not transparent. Our research is an initial attempt to quantify this cost.

Keywords: DMM, Floor Broker, Parity

JEL Classification: G10

Suggested Citation

Battalio, Robert H. and Jennings, Robert H. and McDonald, Bill, Deviations from Time Priority on the NYSE (December 17, 2018). Available at SSRN: https://ssrn.com/abstract=3302774 or http://dx.doi.org/10.2139/ssrn.3302774

Robert H. Battalio (Contact Author)

University of Notre Dame - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States
574-631-9428 (Phone)
574-631-5255 (Fax)

Robert H. Jennings

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-2696 (Phone)
812-855-5875 (Fax)

Bill McDonald

University of Notre Dame - Mendoza College of Business - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

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