Auction market efficiency
The American Stock Exchange is an auction market, where trading is conducted through a centralized specialist system. At the Amex, the overwhelming majority of public buy and sell orders meet directly, not needing specialist intervention. But when the markets are out of balance, the specialist deploys capital and acts as a buyer or seller to bring the markets back into equilibrium. By centralizing order flow and giving public orders priority, investors trade on a level playing field and achieve the best price available. Trading is more orderly so price volatility is reduced, spreads are narrower, and execution costs are lower.
Specialist vs. Market Maker
A single specialist firm, chosen by the listed company at time of listing, has an affirmative obligation to make a fair and orderly market in the company's stock. No Nasdaq market maker has such an affirmative obligation. Being able to select a specialist allows the Amex issuer to develop a relationship that can provide its management with valuable insight into the market — a resource that issuers simply cannot get with the fragmented market structure of the Nasdaq. After all, specialists get to know listed companies' businesses like no Nasdaq market maker does. Amex specialists also maintain relationships with some of the biggest financial institutions on Wall Street, thus ensuring access to substantial capital to support quality markets. Furthermore, unlike the loyalty displayed by Amex specialists, Nasdaq market makers can choose whether to make a market in any particular stock — meaning that stocks can be dropped at the market maker's whim, when markets get challenging.
The Exchange's specialist-based auction market structure creates a quality trading environment that promotes...
- Liquidity: allows investors to buy and sell quickly, easily, and with minimal price impact, a key to building investor confidence
- Narrower spreads: the interaction of buyers and sellers results in smaller price differentials between trades
- Decreased volatility: specialists' capital commitment helps consistently maintain a fair and orderly market to minimize volatility
Specialist commitment and access
In addition to strict regulatory oversight, the specialist is accountable to the company, its investors, and its board of directors. The specialist...
- maintains a fair and orderly market to minimize spread and volatility
- commits capital (in response to market need) to promote greater liquidity
- monitors institutional activity to anticipate market, industry, and company-specific trends
- is a company's direct link to the Amex floor for real-time trading and market intelligence on its stock
- helps companies gain coverage and visibility through ongoing relationships with institutional investors
Below are the equities specialists on the Amex:
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| American Stock Exchange Specialist Firms |
|---|
|
| AGS Specialists LLC |
| AIM Securities Co. |
| Brendan E. Cryan and Company LLC |
| Cohen Specialists LLC |
| HBH Specialists LLC (Bear Wagner) |
| J. Streicher & Co. LLC |
| Kellogg Capital Group, LLC |
| La Branche & Co., Inc. |
| Weiskopf, Silver & Co./Jefferies & Co. |
|
Source: American Stock Exchange.
Data as of 06/30/06.
An Alarming Trend
Due to lower trading volume, fewer short-term profitable trading opportunities, and consolidation in the industry, over the past 54 months the number of market makers in NASDAQ stocks has continued to decline.
This indicates that obtaining (and maintaining) multiple quality market makers is getting more difficult for Nasdaq issuers. At the same time the Amex specialists have maintained a steady presence large due to a longer-term business perspective.
Market Maker Participation in Nasdaq Global Market*
Securities (Dec. 2001 - Dec. 2006) |
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Source: NasdaqTrader.com. A polynomial (2nd order) trendline was used.
This graph only includes NNM Registered Market Participants with a trade volume greater than 0.
Data as of 12/29/06.
* Formerly referred to as Nasdaq National Market.
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