How OptiMark Conducts Trades

How does the new OptiMark stock trading system work? Here’s a look at a hypothetical trade sequence:

1. Assume that the current New York Stock Exchange quotes for stock XYZ Corp. are as follows:

* NYSE “asked” quote (the lowest price acceptable to a prospective seller): 50,000 shares at $100.13 (a “limit” order, specifying that price or better).

* NYSE “bid” quote (the highest price a prospective buyer is willing to pay): 50,000 shares at $100.

Also assume that all other markets are showing only 100-share bid and asked quotes, so they are out of the running.

2. OptiMark has a buyer of 150,000 XYZ shares at $100.25 and a seller of 125,000 shares, also at $100.25.

3. The OptiMark “match cycle” will lead to two trades:

* 100,000 shares will trade immediately on the Pacific Exchange, where OptiMark operates, at $100.25 between the two OptiMark customers.

* An order for 50,000 shares will be sent to NYSE over the Intermarket Trading System at $100.25 to satisfy the $100.13 limit order, as required under rules of the National Market System.

Within a minute, the NYSE “specialist” in XYZ will most likely accept this and the trade of 50,000 shares will occur on the NYSE.

Who benefited because OptiMark was available?

* The NYSE seller got a better price than his limit order price.

* The OptiMark seller sold 100,000 of his shares at the desired price. The OptiMark buyer bought all 150,000 shares sought at the desired price.

Both customers benefited from access to liquidity in both OptiMark and the National Market System.