I just learned that the Judge dismissed all of the claims asserted by Cathedral in an order entered on April 29.
What are the implications of this? The judge has upheld the exchanges right to keep the odds in favour of the market maker?
I am waiting for our attorney to fax it over, and he is waiting for his clerk to get it. Will keep you advised. My guess is that their complaint was not specific enough, i.e. they alleged numerous counts in the complaint but, did not support them with specific circumstances; and/or the federal judge through it out because an SRO is sanctioned by the SEC and there is case law protecting them from civil suits. Whatever the case, I hope they appeal it ...
Reviewing the judge's ruling and other available documents, I think Cathedral needed another law firm. Apparently they presented allegations without any specific examples of the alleged actions. I my opinion, the real issue is anti-competitve behavior within and between the exchanges. It's absolutely amazing how the tactics of one exchange are adapted within days by another exchange. The SEC keeps swallowing the exchange's story that they need new regulations to keep the markets competitive. As far as I can tell, the exchanges do everything possible to reduce liquidity and force dumb order flow to their price. I had an instance on Friday where I wanted to sell at the bid on the CBOE. A public customer was trying to buy a nickel shy of the MM's ask. I placed an order to sell and 90 seconds later T&S printed showing a fill at my price and quantity. Another 20 seconds later, the fill was canceled on T&S and the same number of contracts went a nickel higher! I assume the public customer decided to buy at the market and raised his offer during the time my order was being processed. So they ignored my order on the public book and gave the customer a fill at an inferior price. When challenged, they canceled their fill and give me mine. While the floor always has an excuse, I have logged a number of such incidents in the last two weeks. This type of abuse is becoming common since the Cathedral ruling. I've started keeping a detailed log. Who knows, it may become useful if the exchanges don't rein in their cowboys.
Deserttrader, If you have a copy of the ruling can you forward it too me? The suspense is killing me, and I do not think I will get a hard copy from our attorneys until Monday. As for your comment about counsel, well that is why we did not join them ...
Desert Trader wrote: I've started keeping a detailed log. Who knows, it may become useful if the exchanges don't rein in their cowboys. Good idea, that's what you need to build a case/argument. For example, 2 weeks ago I was selling 5 options to the bid on the Amex, I don't remember the exact date or stock, but the order didn't execute, after awhile I called the broker and a minute later the order was executed. By me not noting or logging questionable trades(not saying I'm always right) I feel I let them get away, and in someways help them get away.
The judgement can be downloaded off the US District Court - Northern District of Illinois web site www.ilnd.uscourts.gov/ . Look up recent opinions under Judge Bucklo. Case number is 01-CV-3456.
DesertTrader, After reading the ruling, I think I made the right decision on not joining with them in the suit. It seems that the complaint was dismissed due to vague allegations and technical issues, not that the underlying case lacks merit. In my view they needed more experienced counsel. If any of Cathedral's principals are reading this; I would like to talk to you. We told Dickie that last year and I do not know if he passed the information to Smolinski.
Exactly. Perhaps Cathedral was addressing the wrong set of issues. I am interested in seeing the exchanges enforce their obligation to provide fair and liquid markets for the public. Simply stated, if I place a limit order at market and have time priority, I expect a fill. Several months ago, I would ask for a floor ruling two or three times a week and would lose nine out of ten. Now the frequency is up to one to three rulings a day and I win nine out of ten. While forcing a floor ruling is time consuming, a favorable ruling outcome at least suggests there is smoke. Several thousand might suggest revisiting the issues within the SEC/DOJ anticompetitive sanction. In September 2000 , the four floor exchanges were sanctioned by the SEC and DOJ for anticompetitve conduct http://www.sec.gov/news/press/2000-126.txt . They were ordered to spend $77M, in part, on surveillance and enforcement to "satisfy their legal obligation to effectively enforce compliance with the following exchange rules: Priority Rules ... Firm Quote Rules ... Limit Order Display Rules .... Trade Reporting Rules ...." As a public customer, I see no evidence that the corrective actions have been effective. On Monday, I will make a FOIA request to the SEC and DOJ for all data pertaining to compliance with the sanction. I think its time that all floor rulings become part of a public database and include the corrective action taken by exchange where violations of rules were found. Perhaps the SEC/DOJ database will contain this information. Some parties on the CBOE blacklist may have stepped over the line; however, most were likely just trying to trade the markets presented to them. It's too bad the Court didn't dig a little deeper into the CBOE's explanation of how parties were abusing the RAES system. I have seen none of the mechanics described in the actual market place; however, I have seen spreads widen, liquidity decrease and fades against public orders become increasingly frequent.