It’s true that it’s hard to compare apples to apples when evaluating different listing venues such as Nasdaq and the New York Stock Exchange (NYSE). That’s because a stock like Apple (Nasdaq: AAPL) is only primary listed on Nasdaq.
You might not be aware that U.S. regulations were changed years ago so that tickers could trade on any exchange, dark pool or directly with a broker’s own book. There are now more than 50 places where stocks can trade. It allows us to directly compare market structure across venues to see which one works best for investors.
In our previous analysis, we compared stocks in the S&P500. Today we expand that peer set with data that shows our market quality is also superior for the broader Russell 1000 index.
More Market Share on Nasdaq, Even If You List on NYSE
Liquidity is important to large investors, so let’s start there.
Despite all the competition for trading, listing exchanges still execute a significant portion of all trades. In fact, data shows that Nasdaq trades around 30% of all continuous liquidity in Nasdaq-listed stocks. In contrast, NYSE trades around 17% for NYSE-listed stocks.
But, Nasdaq also trades stocks listed on the New York Stock Exchange. Over the past month, Nasdaq has overtaken NYSE in providing intraday liquidity for NYSE listings. To us, that’s a sign that our transparent, equal market structure works better for all types of investors and issuers.
Chart 1: Market share shows Nasdaq trades more of NYSE’s stocks than NYSE
More Price Discovery on Nasdaq, Even If You List on NYSE
Another thing exchanges provide to the market is public, or “lit” prices. Competitive lit quotes are what keep spreads tight and execution costs low, even for investors using dark pools. So being on the bid or offer (the “inside”) is important to the whole market.
Data shows that Nasdaq is on the bid and offer of our own listings around 65% of the time in January. In contrast, NYSE was on the bid and offer in their own listings less than 55% of the time.
Interestingly, as volatility spiked in March, NYSE’s time at the inside for their own listings fell to below 40%, and has stayed at that level since the floor closed.
Since late March, Nasdaq has been providing better quote quality for NYSE’s own listings.
Chart 2: Nasdaq is providing more competitive quotes in NYSE listings than NYSE
Updating Our Opening and Closing Auction Comparisons
Primary listing is, however, more important for traders in auctions.
That’s because index providers have decided that the primary price is the official price they use to calculate portfolio performance and stock returns. That means we can’t compare apples-to-apples when we’re looking at auctions.
Below we update our comparison of Nasdaq and NYSE auction performance.
And just to ensure we’re not cherry-picking data, today we equal weight our results. That means the top five companies in the U.S. market, which are all Nasdaq-listed, don’t count for too much of our performance.
The results, however, are consistent.
Chart 3: Average move after opening auction is higher for NYSE
In theory, the human Designated Market Maker (DMM) is meant to dampen volatility and open stocks at better prices, especially when markets become stressed and volatility increases.
Looking at how different the official market open price is to trading in the next five minutes shows us how good the opening auction is at correctly pricing the auction liquidity. Nasdaq has better results when the New York Stock Exchange trading floor was open and closed, and that continued into April. In fact, on this measure our advantage even improved as April volatility started to fall.
Chart 4: Average move into closing auction is higher for NYSE
In the same way, we can look at how different the official market close price is to trading in the five minutes right before the close. That timeframe also ensures that all market moving information on imbalances, from NYSE and Nasdaq, is public before we start.
The results show that Nasdaq has better results when the floor was open, and significantly better results just after the floor closed. That advantage continued into April even as market-wide volatility started to fall.
Chart 5: Nasdaq stocks have tighter spreads around open
Everyone agrees that spreads are important to investors. They are a key contributor to investor costs, especially investors who like your stocks and want to buy it more quickly. Tighter spreads reduce costs.
Looking at S&P500 spreads in the first half hour of trading shows that Nasdaq has consistently tighter spreads. That’s true whether the floor was open or closed. That cost advantage continued into April even as market-wide volatility started to fall.
Chart 6: Nasdaq stocks have tighter spreads around close
Finally, we update our view of spreads around the close.
Typically, the time into the close has the narrowest spreads all day. That makes sense: all the news is old, and even the balance of buying and selling is mostly priced in. That’s why the size of these spreads is around a quarter of the spreads on the open.
However, there is also more liquidity trading into the close, as larger trades are rushed to complete and cashflows are invested closer to their benchmark price. In fact, around the same liquidity trades in the last 15 minutes as the first 30 minutes, which makes these timeframes equally important to investors.
Based on the $1 trillion that trades in that time in Nasdaq stocks, investors saved $206 million in March and April around the open and close.
We’re Proud of the Markets We’ve Created
Markets are all about bringing buyers and sellers together. That’s why we have created a market model and rules that encourage more competition at the bid and the offer, from a combination of buyers and sellers. Tighter spreads and more liquidity in one place helps issuers and investors reduce their costs.
We believe our approach to markets is better. The data confirms it.
Nasdaq's Superior Market Model
Discover how Nasdaq's market structure supports the best interest of issuers and investors.