High-speed traders have taken over the NYSE trading floor
GTS, an automated market maker, on Tuesday announced it was going to become a designated market maker (DMM) at NYSE by acquiring Barclays' DMM trading business.
DMMs are human traders on the floor of NYSE who are supposed to "facilitate price discovery during market opens, closes and during periods of trading imbalances or instability," according to the exchange.
"The DMM model, unique to the NYSE, provides an irreplaceable safeguard to investors and listed companies and is proven to lower volatility for individual stocks," NYSE Group President Tom Farley said in a statement Tuesday.
"This is especially critical during complex market events, such as IPOs and the start of trading each day."
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As part of the transaction, GTS will become the DMM for over 1,200 listed securities. GTS said in a statement that "virtually all of the Barclays DMM floor team are expected to join GTS as part of the transaction."
Other DMMs include high-speed trading firms Virtu, KCG and IMC Financial, which bought Goldman Sachs' DMM business in 2014
As Bloomberg reporters Annie Massa and Nick Baker point out, high-speed trading firms now oversee almost all of the trading of stocks on the NYSE floor. The other two DMMs are Brendan E. Cryan and Company, and long-time DMM J. Streicher & Co.
NYSE also has so-called supplemental liquidity providers (SLPs), which are electronic, high volume traders which are incentivized to buy and sell stocks to add liquidity. High-speed firms Hudson River Trading, Latour Trading and Tradebot Systems are SLPs, along with investment banks like Goldman Sachs and Bank of America Merrill Lynch.
The NYSE is a relative throwback in that it still uses human traders to set the price of shares early on. Other exchanges use computers to do it.
The role of DMM came under scrutiny late last year, when markets went haywire in late August. One of the NYSE's biggest rivals, as well as electronic-trading firms that do business on the exchange, criticized the way it handled the swings in the market that week.
In a statement, Joseph Mecane, managing director in the electronic equities and credit products business at Barclays, said that the bank continues to believe in the DMM model.
"However, with the evolving market structure, we also believe that a firm specializing in the technology of market making, such as GTS, is best suited to enhance the NYSE DMM business," he said.