NYSE adds Getco LLC as a Designated Market Maker…hmmm.

Remember Getco? The High Frequency Trading Kings? (see here: http://online.wsj.com/article/SB125133123046162191.html and here: http://blog.themistrading.com/?p=283)

Well, recently Labranche sold their specialist operation to Barclays, who just sold 350 “DMM assignments” to  Getco LLC.   See this article:


NYSE Euronext and GETCO LLC, a global electronic trading and technology firm, today announced that GETCO is expected to become a New York Stock Exchange designated market maker.

In addition, GETCO said it has also purchased approximately 350 NYSE designated market maker (DMM) assignments from Barclays Capital. Financial terms of the transaction were not disclosed.

GETCO is a supplemental liquidity provider on NYSE, a lead market maker on NYSE Arca, and will be a DMM on the NYSE and NYSE Amex. The firm is a global liquidity provider in more than 30 markets in North America, Europe and Asia; a registered market maker on the NASDAQ and BATS exchanges; and is consistently among the top five participants by volume on NYSE Arca, NYSE Arca Options, NYSE Liffe U.S., CME, Eurex, and various other equities, futures and options markets, according to the announcement.

Barclays Capital will continue serving GETCO’s NYSE-listed DMM clients over a period during which GETCO will complete the process of incorporating NYSE DMM-specific infrastructure into its trading platform. The transfer of these issues will maintain diversity among DMM firms and NYSE-listed companies, as announced when Barclays Capital acquired LaBranche & Co. LLC’s DMM business last month.

“GETCO brings to this new role its strong performance as an NYSE supplemental liquidity provider and NYSE Arca lead market maker, and its exceptional track record of market-making expertise and technology,” said Lawrence Leibowitz, NYSE Euronext Chief Operating Officer and Head of U.S. Markets. “Having GETCO become a designated market maker in NYSE-listed issues and in our upcoming trading of Nasdaq issues on the NYSE Amex platform clearly reflects a vote of confidence in the value of our market model for our issuer, investor and trader communities.”

Dave Babulak, managing director of GETCO Securities, said serving as a designated market maker for NYSE listed companies is “an important priority for us.”

“Our clients will receive the same high level of market insight, service and professionalism they expect from the NYSE’s market model, supported by GETCO’s deep global liquidity and proven, market-leading technology,” said Babulak.

As a DMM, Getco gets privileges.  DMMs can trade competitively as dealers. The privileges are greater than being just a SLP (supplemental liquidity provider). A  DMM has parity. That way everyone can get a piece of the execution. And they must maintain a two sided market a whopping 10% of the time in active names, and 15% in inactive ones.  This is how I understand it works, anyway. An excellent explanation of how the floor works in these times is given by Mr. Durden of ZH:

The NYSE’s most recent classification of the three main market participants is as follows:

Designated Market Makers

Designated Market Makers (DMMs) are at the center of the NYSE market and are the only participants in any market who have true accountability for maintaining a fair and orderly market. DMMs:

  • Convene both a physical auction convened by DMMs and a completely automated auction that includes algorithmic quotes from DMMs and other market participants;
  • Have the obligation to maintain an orderly market in their stocks, quote at the national best bid or offer a specified percentage of the time, and facilitate price discovery at the open, close and in periods of significant imbalances;
  • Provide price improvement and match incoming orders based on a pre-programmed Capital Commitment Schedule, which has been added to the NYSE Display Book, minimizing order latency. DMMs and their algorithms do not receive a “look” at incoming orders. This ensures that an intermediary does not see orders first, and that DMMs compete as a market participant;
  • Are on parity with quotes from floor brokers and those on the Display Book, encouraging DMM participation and higher market quality.

Trading Floor Brokers

Brokers on the NYSE Trading Floor leverage their physical point-of sale-presence with information technologies and algorithmic tools to offer customers the benefits of flexibility, judgment, automation and anonymity with minimal market impact. Trading Floor Brokers:

  • Have parity with DMMs and the NYSE Display Book, no matter whether the Broker’s order is represented physically or via an algorithm or e-Quote. That is, they can join the first displayed quote on the Book, and split stock with that order.
  • Have the ability to route all or part of a customer order to an external algo engine from their handheld order-management device. These algorithms offer Floor Brokers the ability to provide customers with additional execution capabilities in an environment that offers a balanced combination of technology for fast, automated and anonymous order execution; and a physical marketplace for discovering block-sized liquidity and improving prices.
  • Can utilize a technology feature called Block Talk to more efficiently locate deep liquidity. Block Talk is designed allow Floor Brokers to broadcast and subscribe to specific stocks they have an interest in, creating an opportunity to trade block-sized liquidity that is not accessible electronically. Since the messages contain no specific order information, customers benefit from a discovery process in a secure environment free of impact, information leakage or intermediation.
  • Also have the ability to identify via their hand-held order-management system the last five buyers and sellers in a stock by badge number. They can message a specific member that they are in touch with the contra side. This is valuable information for pricing blocks, as it is about real buyers and sellers, not indications of interest.
  • Have a special feature with their reserve orders: when the displayed amount is exhausted, reserve interest replenishes on parity. In contrast, the “upstairs” reserve order functions as it does in an electronic market: replenishing at the back of the queue.
  • Are positioned to act on the expanded imbalance and indication information at the open and close of the market. They can participate as agent, or convey insight into the open or close for customers’ decision making.

And most relevantly, Supplemental Liquidity Providers

Supplemental Liquidity Providers (SLPs) are upstairs, electronic, high-volume members incented to add liquidity on the NYSE.

  • The pilot SLP program rewards aggressive liquidity suppliers, who complement and add competition to existing quote providers.
  • SLPs are obligated to maintain a bid or offer at the National Best Bid or Offer (NBBO) in each assigned security at least 5 percent of the trading day.
  • The NYSE pays a financial rebate to the SLP when the SLP posts liquidity in an assigned security that executes against incoming orders. This generates more quoting activity, leading to tighter spreads and greater liquidity at each price level.
  • SLPs trade only for their proprietary accounts, not for public customers or on an agency basis.
  • An NYSE staff committee assigns each SLP a cross section of NYSE-listed securities. Multiple SLPs may be assigned to each issue.
  • A member organization cannot act as a Designated Market Maker and SLP in the same security.
  • SLPs have the same publicly available trading information and market data that all other NYSE customers have available to them.

In my wayback mirror, I recall when a customer order took priority above all. Obviously that principle has been blown up. When HFT margins get squeezed by new entrants and threats of regulation, the existing big boys must do everything to preserve margin. This includes paying the exchanges for colo space, and now paying for the right to trade with customer orders on the exchange.

I am thinking we are all wasting time. Why take these baby steps? I say financial institutions just start giving your money away to HFT firms, in exchange for revenue. Just straight out giving. A least each day you will be able to see, in your online account,  what exactly is being debited out of your account and into theirs.