Thanks Don for posting this, I appreciate it. And, yes, we all need to understand and work together to level the playing field. My class next week will have much of Dennis' insight into what we are doing now to counter act some of this....thanks again. Don
If you can indulge my ignorance on the equity side, I have a couple questions. Is the number of exchanges really a problem? Shouldn't the competition be good, as long as the data is brought together and displayed for everyone to see at all times? To me the concept of Dark Pools is b.s. and very anti competitive, and shouldn't be allowed across any markets. I would be interested in your comments Don, or anyone. All orders in the markets should be visible and available to everyone to make competition fair. I don't think because some fund, or whatever has a huge order to place they should be able to hide it and try to avoid the consequences fo unloading a large postion. To me that is just a way for them to avoid paying a price for a mistake, or to enlarge their profit on a win. They should be able to put it incrementally, and people can try to figure the tape accordingly as to whether someone is bailing and try to discern whether there is a reason to run for cover or start buying. If we are going to calim our markets are open and free the stock and commodity markets should be just that regardless of your size.
Ok my two cents its just that but.... This whole sub penny bs sucks. They have to take that away right away. There is no more incentive to provide liquidity cause you just plain don't get filled until the opportunity is GONE> So that sucks....so no more rebates I don't even really try anymore...Im just going to switch firms from my current one to knock my commissions by 40%....sad I like my firm but true business is business. thats basically covers part of the rebate i used to get. If stuff just traded in pennies, you would have a lot more price movement....now its just a giant suckfest with thousands of shares or millions going off before the stock even moves a few pennies. Yes...now its time to centralize the markets once again. Maybe pick the top 3 and kick everyone else out. These fragmented markets, since they prolifterate, just coincidentally happen at the time when there seems to be no liquidity. I'm not really sure I am right, but that is what I think and that's what my frustrations are. Peace
TRADER TALK with Bob Pisani SEC's Schapiro Offers Flash Crash Clues Published: Tuesday, 7 Sep 2010 | 12:51 PM ET By: Bob Pisani, CNBC Reporter "[Schapiro] is particularly concerned about the role of dark pools and internalizing broker-dealers." SEC Chief Mary Schapiro, speaking at the Economic Club of New York, as expected addressed market structure issues in her speech. While there are no new proposals in the speech, and she asks more questions than she answers, she does hint at the direction the Flash Crash report may be going, which is expected by the end of September. After reviewing the role high frequency firm play in the market (more than 50 percent of the volume), she concludes, "This transformation of market structure has raised serious questions and concerns." Indeed, she notes that in a recent survey of buy-side traders, less than 50 percent expressed confidence in the current market structure. On circuit breakers: re-examine and tweak. Rather than stopping all trades in a stock for 5 minutes if a single trade occurs 10 percent away from the stock price in a 5-minute period, she proposes a limit up/limit down procedure that would directly prevent trades outside specified parameters. So rather than a total halt, trading may be allowed to occur within parameters; for example, it could trade at less than 10 percent, but not more, in a specified time period. On high-frequency trading: should they have some obligations as liquidity providers? They are not market makers, so they have minimal obligations. But Schapiro notes that in the Flash Crash, order book liquidity disappeared: "Where were the high-frequency trading firms that typically dominate liquidity provision in those stocks?" Market fragmentation: She notes market liquidity has fragmented: "Today, the NYSE executes approximately 26 percent of the volume in its listed stocks. The remaining volume is split among more than 10 public exchanges, more than 30 dark pools, and more than 200 internalizing broker-dealers." Of course, the SEC consciously encouraged this fragmentation under the guise of "encouraging competition." She is particularly concerned about the role of dark pools and internalizing broker-dealers, who do not display their bids and offers to the outside world; together they are almost 30 percent of total volume. Is the public being disadvantaged by this practice? Schapiro concludes: "The structure of today's markets undoubtedly offers many advantages. And, we should not attempt to turn the clock back to the days of trading crowds on exchange floors. But we must carefully consider whether our market structure rules have kept pace with the new trading realities." CNBC.com
TRADER TALK with Bob Pisani More on SEC's Shapiro: Strange Omissions Published: Tuesday, 7 Sep 2010 | 2:09 PM ET By: Bob Pisani, CNBC Reporter SEC Chief Mary Schapiro has spoken at the Economic Club of New York today (see my prior blog)[above]. She addressed several market structure issues, including high frequency trading, but curiously left several other important issues out. Let's hope the SEC finally gets serious about this: the market structure it has created around Reg NMS needs some serious tweaking and was likely a major contributing factor in the May 6 Flash Crash. I have spoken about this many times, and will be addressing these issues in more detail as the SEC publishes its Flash Crash report at the end of this month. Here are some issues the SEC needs to address: 1) How fast is fast enough? We have already decided that under some circumstances we want to slow trading down: we have circuit breakers in place. Do we want to go further? Do we really want an arms race to see if we can make trades in under a microsecond (a millionth of a second)? Should we adopt some limit on how fast trades can be made, a minimum quote duration of, say, 1 second? 2) Extend stock circuit breakers to cover the entire equity universe. Some have advocated "limit up, limit down" rules that would prevent trades outside of specific parameters. 3) Don't allow "clearly erroneous trades" to print. Once a trade prints, it becomes a nightmare making everyone whole. FINRA and the exchanges are considering clearer rules for breaking trades, which would require that trades only be broken once the stock has been halted and if it trades at a certain percent away from the price at which it was halted. 4) More data on who is trading, what, and when. Beefing up market surveillance and creating a better audit trail will increase the trust of all investors. The SEC has proposed a Consolidated Audit Trail System to track information on trading orders and is reviewing comments recently submitted by the public. This should be quickly adopted. 5) Eliminate stub quotes and raise the requirements for what it means to be a market maker. Market makers should not be able to fulfill their obligations by putting in a phony bid of $0.01. If you are a market maker and are required to provide liquidity, you should be required to provide some! The SEC has discussed requiring market makers to post bids or offers that are not more than 10 percent away from the last price, but without any size requirements this won't mean too much. 6) Promote deep order books. Exchanges for years have opposed the idea of a Consolidated Limit Order Book (CLOB), which would essentially dump all bids and offers into a single "pool." It is time to rexamine this idea. There is usually plenty of liquidity, but crazy order handling rules sometimes allows absurd trades to print, far away from the best bid and offer. 7) Raise the barriers to entry for exchanges. In theory, there is no reason you could not have 100 different exchanges, but in reality when you have 100 different pricing mechanisms, it would be tough for the market participants to figure out the most efficient way to route orders...let alone the difficulties regulating all these exchanges. Who's trading stocks these days? I get asked this question constantly; last Friday Larry Tabb, who runs Tabb Group, and I had a fascinating discussion about high frequency trading and the Flash Crash. Here's Larry's estimates on who is trading as a percentage of total volume on all the equity exchanges. Who's trading? (% of daily volume) - High frequency trading 56% (includes proprietary trading shops, market makers, and high-frequency trading hedge funds) - Institutional 17% (mutual funds, pensions, asset managers) - Hedge funds 15% - Retail 11% - Other 1% (non-proprietary banking) Where does the trading occur? Here's Larry's estimates. Exchanges 73% Internalized 15% Dark pools 11% Electronic Communication Networks (ECNs) 1% Source: Tabb Group You can see that dark pools and "internalized" trading (where market makers match orders against their own internal supply) now constitute about 26 percent of the volume. This is important, because these two venues do not display bids and offers to the outside world, they are "unlit" in the parlance of Wall Street. It's not clear if removing that much liquidity from the rest of the market disadvantages everyone else. This is another issue the SEC needs to at least examine. CNBC.com
I swear, these idiots are hell bent on destroying the financial markets. It's like watching a plumber try to fix the electrical, ripping out the wires with pipe wrench and replacing it with six-inch PVC instead of fibre optics. It's pissing me off to where now I'm seriously thinking about following Jim Rogers to Singapore now. Frustrated is an understatement.
Change and regulatory reform are a fact of life in the markets. Have always been and will forever be. Enjoy it!
EchoTrading - A Prop Firm that clears thru Merrill/BAC is still 100% payout... not sure of anybody else or if that will change... ?