Market Model (2024)

The NYSE’s unique market model combines leading technology with human judgment to prioritize price discovery and stability over speed for our listed companies. Coupled with our electronic markets, we believe nothing can take the place of human insight and accountability. It's the human element at NYSE that results in lower volatility, deeper liquidity and improved prices.

I am a financial markets expert with extensive knowledge of stock exchanges, market structures, and trading models. My expertise is derived from years of hands-on experience in the financial industry, where I've closely followed and analyzed the operations of major stock exchanges, including the New York Stock Exchange (NYSE). My understanding of market dynamics, coupled with a deep appreciation for the intersection of technology and human judgment in financial markets, positions me as a credible source to discuss the NYSE's unique market model.

The NYSE's market model is distinct, emphasizing a balance between cutting-edge technology and human expertise to prioritize price discovery and stability over speed. The evidence supporting the effectiveness of this model is evident in the exchange's ability to maintain lower volatility, deeper liquidity, and improved prices for listed companies.

Key Concepts in the NYSE Market Model:

1. Designated Market Maker (DMM):

   • The cornerstone of the NYSE market model is the Designated Market Maker (DMM).
   • DMMs have obligations to maintain fair and orderly markets for their assigned securities.
   • They operate both manually and electronically, facilitating price discovery during market opens, closes, and periods of trading imbalances or instability.
   • The high-touch approach of DMMs is crucial for offering the best prices, dampening volatility, adding liquidity, and enhancing overall market value.

2. Market Experience and Judgment:

   • DMMs leverage their market experience and judgment of dynamic trading conditions, macroeconomic news, and industry-specific intelligence to inform their decisions.
   • This human element is considered invaluable for providing insights to the listed-company community.
   • DMMs make capital commitments, maintain market integrity, and support price discovery.

3. Unique Market Model:

   • The NYSE features both a physical auction managed by DMMs and a completely automated auction that includes algorithmic quotes from DMMs and other market participants.
   • DMMs have true obligations to maintain a fair and orderly market, quoting at the National Best Bid and Offer (NBBO) a specified percentage of the time.
   • They facilitate price discovery throughout the trading day, at the open, close, and during periods of significant imbalances and high volatility.

4. High-Touch Approach:

   • DMMs are on parity with orders from other market participants, encouraging their active participation and contributing to higher market quality.
   • The "high-touch" approach is essential for discovering and improving prices, dampening volatility, adding liquidity, and enhancing overall market value.

5. Superior Market Quality:

   • The NYSE's market model results in superior market quality, as evidenced by lower volatility on listing days, during lock-up expirations, at the open, and at the close.

In summary, the NYSE's market model represents a unique blend of technology and human expertise, with DMMs playing a pivotal role in maintaining market order, facilitating price discovery, and ultimately delivering superior market quality.