What is 'Supplemental Liquidity Provider (SLP)'

Supplemental liquidity providers are one of three key market participants on the New York Stock Exchange (NYSE). Supplemental Liquidity Providers (SLPs) are market participants that use sophisticated high-speed computers and algorithms to create high volume on exchanges in order to add liquidity to the markets. As an incentive for providing liquidity, the exchange pays the SLP a rebate or fee, which was 0.15 cents as of 2009.

BREAKING DOWN 'Supplemental Liquidity Provider (SLP)'

The supplemental liquidity provider (SLP) program was introduced shortly after the collapse of Lehman Brothers. The collapse of Lehman Brothers in 2008 caused major concerns about liquidity in markets, which led to the introduction of the SLP to attempt to alleviate the crisis. The other two key market participants are Designated Market Makers (DMMs) and Trading Floor Brokers. The NYSE’s unique market model combines leading technology with human judgment to prioritize price discovery and stability over speed for listed companies. The NYSE believes the human element of its market model results in lower volatility, deeper liquidity and improved prices.

SLPs were created to add liquidity and complement and compete with existing quote providers. Each SLP usually has a cross section of securities on the exchange where it exists and is obligated to maintain a bid or offer at the National Best Bid or Offer (NBBO) in each of their assigned securities at least 10 percent of the trading day. SLPs are also required to average 10 million shares a day in provided volume to qualify for enhanced financial rebates.

The NYSE rewards competitive quoting by SLPs with a financial rebate when the SLP posts liquidity in an assigned security that executes against incoming orders. This generates more quoting activity, leading to tighter spreads and greater liquidity at each price level.

SLPs are primarily found in more liquid stocks with greater than 1 million shares of average daily volume. SLPs trade only for their proprietary accounts, not for public customers or on an agency basis. SLPs that post liquidity in an assigned security that executes against incoming orders are awarded a financial rebate by the NYSE.

Facts About Supplemental Liquidity Providers

  • The pilot SLP program rewarded aggressive liquidity suppliers, who complement and added competition to existing quote providers. 
  • An NYSE staff committee assigns each SLP a cross section of NYSE-listed securities. Multiple SLPs may be assigned to each issue. 
  • A member organization cannot act as a Designated Market Maker and SLP in the same security.
  • When they were first instituted in 2009, supplemental liquidity providers were intended to complement designated market makers
  1. High-Frequency Trading - HFT

    High-frequency trading - HFT is a program trading platform that ...
  2. Specialist Unit

    A specialist unit was a group of people or firms that served ...
  3. Liquid Asset

    A liquid asset is an asset that can be turned into cash quickly ...
  4. Core Liquidity Provider

    A core liquidity provider is an underwriter or a market maker ...
  5. Broad Liquidity

    Broad liquidity is a category of the money supply which includes: ...
  6. Core Liquidity

    Cash liquidity is the cash and other financial assets that banks ...
Related Articles
  1. Investing

    Understanding Liquidity Risk

    Make sure that your trades are safe by learning how to measure the liquidity risk.
  2. Investing

    Understanding financial liquidity

    Financial liquidity comes into play for companies, your personal finances, investing, and the financial markets. However, assets and investments have varying liquidity levels.
  3. Investing

    The Auction Method: How NYSE Stock Prices are Set

    Find out how the New York Stock Exchange (NYSE) runs an auction process known as open outcry to set stock prices during the opening and closing auctions.
  4. Financial Advisor

    Small-Cap Investing and Illiquidity

    Do your homework, have a long-term view, exercise patience, you'll find that investing in small market capitalization stocks is no riskier than investing in large stocks.
  5. Financial Advisor

    Why Liquidity Matters in the Corporate Bond Market

    Professional analysis and constant monitoring of liquidity risk when investing in corporate bonds is highly important.
  6. Investing

    Explaining the Liquidity Preference Theory

    According to the liquidity preference theory, investors demand interest in return for sacrificing their liquidity.
  7. Personal Finance

    How Mail-In Rebates Rip You Off

    These common strategies often leave consumers holding the bill.
  8. Investing

    How Well Do You Understand ETFs?

    Exchange traded funds (ETFs) are very different from common stock of public companies.
  1. What is liquidity management?

    Take a look at the different definitions of liquidity, and find out how investors and businesses attempt to reduce exposure ... Read Answer >>
  2. Differences between liquidity and liquid assets

    Liquid assets can easily be converted into cash. Liquidity is the ability of a business to pay its debts using its liquid ... Read Answer >>
  3. What is liquidity risk?

    Learn how to distinguish between the two broad types of financial liquidity risk: funding liquidity risk and market liquidity ... Read Answer >>
  4. Is it important for a company always to have a high liquidity ratio?

    Understand the significance of the liquidity ratio and how it is used in conjunction with other measures to arrive at an ... Read Answer >>
Trading Center