Supplemental Liquidity Providers

Hello, never been to the traders train, usually stick to the other side of the wall. But, I have a question. I was reading this from Zero Hedge: http://zerohedge.blogspot.com/2009/05/observation…-trading.html, and two things stuck out:

1) "The NYSE report that Zero Hedge discussed shows Goldman Sachs trading over 1 billion shares in the principal program trading category. What the table doesn’t show, but a deeper look at the numbers reveals is that the vast majority of this total is trades by our quantitative trading desk. This desk is participating in a relatively new NYSE program called Supplemental Liquidity Providers."

2) "SLPs trade only for their proprietary accounts, not for public customers or on an agency basis."

So...did the NYSE report fail to exclude SLP #s from the principal category (since it's a strictly prop program), or is there something else to this?

Also, how big of a headache is it to be a successful market maker of a basket of stocks that also trade individually (which you cannot do on top of SLPing)?

 

Loool REBATE TRADING! Swell just swell

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

ummm.... OK.... and what does that have to do with SRP and Program Trading on the NYSE?

Welcome to WSO!

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 
trade4size:
ummm.... OK.... and what does that have to do with SRP and Program Trading on the NYSE?

Welcome to WSO!

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

Haha, yeah what was that post about?

Anyway, could you respond to my question about the possible prop/principal error? You seem to have an idea about what this is about.

 
Best Response

Ok I read the article and here are my thoughts.

Program trading on the NYSE includes the SLP program. Take a look at the first charts which shows Program Trading Principle Volume for the top 10 players.

http://4.bp.blogspot.com/_FM71j6-VkNE/SfzF-76qPRI/AAAAAAAACSk/9P_tYThE8…

Notice that since the introduction of the SLP Goldman has expanded to nearly 50% of the Program Trading Principle volume while the other players have shrunk. Basically goldman has become a larger player in principal program trading.

http://3.bp.blogspot.com/_FM71j6-VkNE/SfzHXRDnH_I/AAAAAAAACSs/dhW7TBRCy…

The above chart depicts what % of total Program Trading Volume is Principal Volume. As you can see Goldman has spiked recently having roughly 90% of its Program Trading Volume as principle (For their own account).

http://2.bp.blogspot.com/_FM71j6-VkNE/SfzISpYNtvI/AAAAAAAACS0/-HU8rNoz3…

The last chart basically says that Goldman agency (Customer) order flow accounts for only about 5% of total program trading volume.

Basically the current trends suggests that Goldman is doing more and more trading for its own account and less trading for its customer on a relative basis in program trading. A catalyst for this is the SRP program which as my above post indicated is a way of getting a rebate for adding liquidity to the market in the NYSE book.

As far your questions go, SLP volume IS included and is a large component of the principal category. Basically what the whole blog post is arguing that since the introduction of the SLP program goldman has began to do much more principle program. While the data on the SRP program is not fully available yet you can back out that goldman has a near monopoly on this market.

This is goldmans way of acting like a DMM in many names. Ultimately what it comes down to is that Goldman has been an increasingly bigger player in the Principal program trading area because of the SLP program.

I would be happy to discuss this in further detail. I think I have most of the ideas conveyed in this post correct but maybe not.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

Yes other firms can (and have) entered into the SLP program. Basically right now Goldman is seizing the opportunity to grab market share in equities because they are the bank in best shape to take risk.

Traditionally GS/CS/MS/ML are the big players in prop equity with GS being the clear leader in algorithmic quant trading.

Essentially what this is is a program that will provide rebate for the SLP. To really understand the program you need to understand the market structure for equity trading.

When you are using limit orders you are considered to be adding liquidity and for this you get a rebate. When you use a market order, buy on the offer, or sell on the bid you are taking liquidity and are charged. The different venues have different prices per share for this.

NYSE under the regular program is as follow: .0010 Adding liquidity/ .0018 Taking liquidity. What this means is that for every 1000 shares that you get filled on when adding liquidity you will receive a $1 rebate. For every 1000 shares you take liquidity on you will be charged an additional $1.80

Under the SRP program firms get .0015 for adding liquidity. This is a huge jump compared to the regular NYSE program.

NYSE pays the least for adding liquidity. When I am adding liquidity I place orders on ARCA or BATS. When I am taking liquidity I preference NYSE meaning I will first take liquidity from NYSE and if that is not available it will sweep for the best price. For a small trader the difference is so small your never going to notice but when your doing millions of shares of day this can easily add up.

Lets assume you are a trader at GS and do about 10 million shares a day in volume. The effect on the SRP program increases your PNL by .0005/share just by the incentives offered by the program. On 10 million shares a day that is $5000/day.

Let me know if your still following me and I will continue.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

Thats tough to explain without being too wordy but I will try. Liquidity is basically the ease of being able to turn an asset into cash or cash into an asset. I cant really put it any more simple that that. By using a limit order you are adding depth to the market. That depth at a given price level be it a bid or an offer is liquidity. The more bids and offers at given prices and the higher the quantity at those prices is the degree of liquidity the market has.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

Bump.... This is an interesting topic but I suppose no one else knows whats going on? Come on guys why is goldman the only firm taking advantage of this special program created by the NYSE. The NYSE has essentially increased the payouts by 70% for being a high volume market liquidity provider.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

ok, couple questions: 1. so unlike a stop order, a limit order is NOT converted into a market order once the price is met? this seems rather obvious, since then you would get a rebate and get charged on the same order; i just want confirmation

  1. how are these orders filled? let's say GS places a buy limit order of 1m shares of RIMM at $80/share. then what?

Only two things are infinite, the universe and human stupidity, and I'm not sure about the former.

Only two things are infinite, the universe and human stupidity, and I'm not sure about the former.
 

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"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

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