NYSE Arca

An electronic securities exchange where exchange-traded products and securities are traded

What is NYSE Arca?

NYSE Arca is an electronic securities exchange where exchange-traded products and securities are traded. The exchange was previously known as Archipelago Exchange (ArcaEX) until 2006 when it was acquired by the New York Stock Exchange.

 

NYSE Arca

 

Summary

  • NYSE Arca is an all-electronic securities exchange that is based in Chicago, Illinois in the US.
  • NYSE Arca was established in 2006 after the New York Stock Exchange acquired Archipelago Exchange, and it operates as a subsidiary of the NYSE Group Inc.
  • The key components of NYSE Arca include NYSE Arca Equities and NYSE Arca Options.

 

The exchange operates as a subsidiary of the NYSE group, and it is based in Chicago, Illinois in the U.S. The subsidiary combines the traditional open outcry trading with electronic trading to create a hybrid system. The NYSE Arca specializes in exchange-traded listings that include exchange-traded funds, exchange-traded vehicles, and exchange-traded notes.

The NYSE is the world’s largest exchange-traded funds (ETFs) exchange in terms of listings and volume, with more than 2,238 ETFs listed on the exchange. It accounts for 19.5% of the ETF market in the U.S., with an estimated $3.8 trillion in assets under management.

 

History of NYSE Arca

NYSE Arca was established in 2006 after the merger of the New York Stock Exchange and Archipelago – a leading electronic trading exchange network. Archipelago was established in 1996 by Stuart Townsend and Gerald Putnam under TerraNova Trading LLC.

In 2000, Archipelago established the Archipelago Securities Exchange in partnership with the Pacific Exchange. In 2001, Archipelago changed its name to Archipelago Exchange, abbreviated as “ArcaEx,” and it enabled the entity to facilitate electronic trading in other exchanges in the U.S.

In 2005, Archipelago Exchange merged with the Pacific Exchange. The merger enhanced Archipelago’s ability to offer instantaneous electronic trading through its exchange, which rivaled NYSE’s traditional open outcry system. The electronic trading system allowed the exchange to win day traders and institutional investors who were looking for speedy and cost-effective electronic trading.

In 2006, NYSE acquired Archipelago to form the NYSE Arca Exchange. After the merger, NYSE Arca became a publicly-traded company, and it offered both electronic trading and traditional floor trading to day traders and institutional investors.

Before the acquisition of Archipelago, the majority of NYSE’s transactions were entered manually into the system, which prolonged the duration for processing trades.

 

How the NYSE Arca Works

The NYSE Arca is a fully automated exchange market that uses a computer system to automatically match buy and sell orders in the market. The system connects brokers and individual traders, which eliminates the need for middlemen, as is the case with the traditional open outcry system.

Electronic trading allows traders in different geographical locations to transact quickly and easily with each other. Traders concerned with their privacy enjoy a high level of anonymity, and they can transact high-value transactions electronically.

 

Components of NYSE Arca

The following are the main components of NYSE Arca:

 

1. NYSE Arca Equities

The NYSE Arca Equities is the first fully electronic exchange in the United States that allows trading and listing of exchange-listed securities. The exchange has more than 8,000 US-listed securities, and it connects traders to other US market centers.

The structure of the exchange is designed in a way that customers benefit from fast electronic execution of trades, dark liquidity, transparency, and anonymous market access.

Traders who use this market gain access to open and direct markets, and they benefit from speedy electronic execution of trades across multiple US market centers. Once a transaction is executed, the details are transmitted to the National Securities Clearing Corporation (NSCC) for clearance.

 

2. NYSE Arca Options

The NYSE Arca Options market uses a hybrid trading system that combines the electronic trading system with the traditional open outcry trading system. The options market offers a flat market structure, and it supports trading in options contracts on domestic stocks, American depository receipts, and exchange-traded products.

The NYSE Arca Options market offers a maker/taker pricing model where liquidity-removing trades are charged a fee, and liquidity-adding trades are given a rebate.

Traders using this market benefit from the various pre-trade and post-trade risk management tools, as well as a price-time priority model. After executing the trades, the transaction information is sent to the Options Clearing Corporation for clearing.

 

Additional Resources

CFI is the official provider of the Certified Banking & Credit Analyst (CBCA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Trading Securities
  • American Exchange (AMEX)
  • Volume of Trade
  • NYSE Composite Index

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