An examination of the NYSE’s retail liquidity program

• Published in: The Quarterly review of economics and finance Vol. 80; pp. 367 - 373
• Main Authors: Jain, Pankaj K., Linna, Jared A., McInish, Thomas H.
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.05.2021; Elsevier Advanced Technology Publications
• Subjects: Algorithms; Dark pools; Market fragmentation; NYSE retail liquidity program; Market fragmentation; L10; G14; G20; NYSE retail liquidity program; Dark pools
• ISSN: 1062-9769; 1878-4259
• DOI: 10.1016/j.qref.2021.03.009

•The NYSE's Retail Liquidity Program (RLP) is an innovation designed to attract retail orders.•RLP offers price improvement on exchange to compete effectively against alternative venues.•RLP price improvement is about $0.0038 per share. RLP trades occur on 50.2 % of days.•Likelihood of RLP trade is higher on days when the quoted spread is at a one-cent tick size restriction.•RLP sorting mechanism appears to reduce lit market liquidity suppliers' adverse selection concerns. The NYSE's Retail Liquidity Program (RLP) is a novel, restricted-access venue, in which orders cannot originate from a trading algorithm or any other computer methodology, designed to attract retail orders by offering price improvement. The mean price improvement in the RLP is about $0.0038 per share. RLP trades occur on 50.2 % of days, and on these days, the spread is one-cent 42 % of the time compared with a little less than 33 % of the time for other days. Greater tick-size constraint leads to more RLP trades, and the quoted spread is lower on days with RLP trading. Thus, the RLP sorting mechanism appears to reduce lit market liquidity suppliers' adverse selection concerns and enables them to provide better sub-penny prices to retail traders on lit markets.