the NITE article in the wsj don references was a few years back....NITE was sounding as if they were defending how they could 'guarantee' profits, because they knew what the order flow was for the opening - would buy in the pre-market, then sell to the (guaranteed) buyers... and though i'm no fan of the NYSE, yes, the specialists made a LOT more back in the day. i think that the mayday pricing switch was the beginning of the reductions in take home money, no?
Right...and they continued the practice throughout the trading day...this is what can happen when there is not a single place market for openings and closings (MOC's). MM's make money from order flow...that's just the way it is. Since Specialists can only "accomodate" not "initiate" orders (and upticks and downticks)...it makes things a bit more fair and orderly. Don
"reputable" ? sure that's the point of Ney's book : reputation fabricated by the Wall Street Gang haha ! And is the Journal of Finance reputable enough, I think it is much more reputable than even the Wall Street Journal : http://fisher.osu.edu/fin/journal/jfidd.htm THE BIG NOISE FROM COLUMBUS: THE JOURNAL OF FINANCE BREAKS THE NASDAQ SCANDAL, Investment Dealers Digest, May 22, 1995. (excerpt follows...) If you think the Journal of Finance is just another dusty, ivory-towered publication for egghead professors, ask the Nasdaq Stock Market. Last year the Journal accepted for publication a study of Nasdaq spreads by two assistant professors. Then the fireworks began. The paper, by Vanderbilt professor William Christie and Ohio State Professor Paul Schultz, pointed to alleged tacit collusion by Nasdaq market makers. The article caught attention of the popular pres, and the ensuing stories triggered dozens of class action lawsuits by lawyers on behalf of investors. Then the Justice Department, which also read the article, launched a massive anti-trust probe of the Nasdaq market. "Nobody expected this to happen," says Rene Stulz, the professor who edits the 50-year old publication from Columbus, Ohio. But it's not the first time a Journal of Finance article made waves. In 1992, the Journal published a paper by two University of Chicago academics, Eugene Fama and Ken French, disputing the value of the famous volatility measure, Beta. The led to headlines across the globe proclaiming "Beta is dead" and some handwringing at investment shops that based their portfolios on Beta. Stulz says dozens of papers are still rolling in trying to refute the original paper. The editors of the Journal could also smirk when the first Nobel prizes in economics were awarded to financial economists. The work for two of the winners, Harry Markowitz and William Sharpe, had appeared there also. As for the third winner, Merton Miller: "He's an associate editor," says Stulz. If the Journal can't exactly move markets, it has enough real world impact that Stulz counts many Wall Street investment banks and money management firms among his 8,000 readers. Five issues a year will only cost you $57. If you haven't done original research, don't bother sending in an article. Only about 6% to 7% of submitted pieces ever get published (6.4% to be exact, says the professor); at that, the Journal charges $70 just to read your paper. Nasdaq learned this the hard way when it submitted a rebuttal article to the Journal and got rejected. This rejection did not escape the attention of the lawyers suing Nasdaq market makers. In fact, they included in one of their briefs. "A lame industry rebuttal has been rejected twice by the Journal of Finance, once on peer review, and again on appeal to the editors." (Nasdaq has since gone to hire a group of well known economists, including Miller, to prepare studies refuting the original paper. All papers-Nasdaq or academic-get the same treatment. [/B]
The specialists are no more needed by the big brokers. It's much more profitable for them to make people believe that by suppressing them and substituing an electronic market it will be more fair to the public : this is just a marketing operation ! The cost and liquidity is worst in such kind of market and the market more easy to move by market makers because unless you are incredibly naive the big brokers will never look to lower their profits on the contrary study below (from the head of quantitative research of cdcixis I hope it's reputable enough since it is a subsidiary of one of the biggest financial institution http://www.cdcixis.com/UK/ukgroupeixis/ukprofil.aspx) So it doesn't matter that these specialists will be suppressed because the new race of cats will be worse although by the magic of communication the public will swallow the contrary. <IMG SRC=http://www.elitetrader.com/vb/attachment.php?s=&postid=427598>
Salaried hacks? lol With the expansion of financial markets, technological advancements, and slowly slowly growing regulation, yes the specialists are making less in some comparisons. They are getting a smaller piece of the pie but the pie has grown exponentially. There are more other manipulators, day traders, swing traders, hedge funds, big accredited investors. There are also a lot more listed stocks and more specialists. I don't know if you have read the book but you really should. I thought EXACTLY the same way as you when I was told about it by a work acquiantce. As I took his advice after long arguments, started reading it, I was just beggining my days as a trader. It opened my eyes. Take a look at some daily charts, look at the moves and think where the specialist could have flipped 100k or 200k or 1M or 10k shares long and short. Think of his advantage and almost nonexistent risk. Think like you were the specialist and knew order flow, inside info and top market participants' positions. That should give you an idea of how much they can make. These guys can also scalp and intraday swing shares on big volume and news days. Just look at AZO.
*sigh* another conspiracy? on the other hand, consider the case of EMLX, which I cited recently on another thread, as an example of what happens when there is no entity charged with the responsibility of making an "orderly" market.....
The value of the specialists' edge can be measure quite accurately by the going price for NYSE seats.
Not true per se'. After all purchasing a seat does not in its self allow the member to be a Specialist. Most seat buyers are firms who use the seats for member rates. A NYSE seat is trading at around 2 million. Not cheap yet not expensive when you consider a 2 bedroom condo in a drab post-war building Uptown goes for the same. Jeez a NY Merc seat is close to that. All for the right to stand in the energy pits!
I hear what you're saying Mecro. I'm certainly not arguing that the Specialist doesn't have a license to steal, I'm just saying that the glory days are past. I've still have two Ney books. I cooled on the guy big time in the late 1980's. He shilled his advisory service big time. My Grandmother subscribed and got CLIPPED by his picks.
Yes responsability to make an orderly market but within FAIRNESS CRITERIA. So come down on earth if you ignore certain reality under the pretext of conspiracy I suppose that you will treat this again as conspiracy: " d. Pressure and Harassment Various Nasdaq market makers have exerted pressure on market makers who acted inconsistently with the above-described trading conventions, narrowing the inside spread, and consequently reducing the profits of all other market makers in the stock. The investigation has developed evidence of instances where market makers entered quotes that narrowed the inside spread in contravention of established trading and pricing practices and then were the subject of harassing telephone calls. " I hope the source is reputable enough: it's the SEC http://www.sec.gov/litigation/investreport/nd21a-appx.txt