| According to a study released by the US Securities and Exchange Commission, investors generally receive better prices for their trades on the New York Stock Exchange than on the Nasdaq stock market. Naturally, Nasdaq officials were quick to criticize the study, citing the limited number of factors used.
The report, which compared similar stocks in both markets for a period of a week, marks the first time SEC regulators compared the quality of trade executions on the two very different markets. The officials who compiled the report found no significant difference between the two on executions of the largest stocks. Classified by market capitalization and trading volume, this class of stocks makes up nearly 40 per cent of Nasdaq trading.
In addition, Nasdaq was found to be generally faster at order execution. But for stocks with market capitalization of $1 billion and less, execution costs of trading similar stocks were higher on Nasdaq than on the NYSE. The NYSE was also found to offer investors greater price improvement advantages.
The study compares the “spread” — the difference between the best price one investor is willing to pay for a stock (known as the bid), and the best price another investor is willing to sell the same stock (known as the ask) — between comparable Nasdaq and NYSE stocks. A wider spread usually indicates an investor is paying more money to a market intermediary to get a trade done. The study found that for stocks with market capitalization of $1 billion and less, spreads on Nasdaq were 5.7 cents to 11 cents wider than on the NYSE.
The report identifies the greater direct order interaction on the NYSE as central to its pricing benefits. Unlike Nasdaq, in which order flow is fragmented among thousands of market makers, electronic platforms and a regional exchange, some 80 per cent of trading in NYSE listed shares is done on the floor of the NYSE. |
