Nyse Etf

Discussion in 'ETFs' started by Free Thinker, Dec 7, 2002.

  1. does anybody know if the nyse specialist has to follow the same order handling rules for an amex etf such as DIA or SMH as they have to follow for nyse listed stocks for retail traders? i am specifically thinking about open rules and tradethrough rules. my experience through trading them is they do not but i have been reading the nyse info site all day and cant find the answer. tia
  2. Can you be more specific in your question of how Amex specialist handle their orders compared to NY. What instance /secenario are you thinking about?

  3. NYSE asks you to remove your clothes before bending over.
  4. You just want to drop them to your ankles ...
  5. im thinking about tradethroughs and getting in between the spread.does retail have the same advantage with etf as with a nyse listed stock? tia.
  6. Doesn't really fit here but with no good place to post it might as well post it here because it might interest some reading this thread.


    Spring Break for Nasdaq on Amex

    Peter Chapman

    The American Stock Exchange said it will allow automatic executions against it quotes in Nasdaq securities starting next spring - sometimes.

    The move is in response to the barrage of criticism the Amex has received from Nasdaq market makers since it began trading Nasdaq shares in August. Dealers say Amex specialists have an advantage over them because the Amex only offers order delivery functionality.

    In contrast, Nasdaq market makers must supply automatic executions against their quotes via SuperSOES. Market makers, wanting to access an Amex quote electronically, must route orders to the specialist over the Amex's PER system, or some other order delivery mechanism. Once the order arrives at the post, an execution can take as long as 15 seconds because it is exposed to the crowd.

    Market makers want the Amex to provide automatic executions against the orders on the specialists' books. Nasdaq, in fact, demanded that Amex link up to SuperSOES.

    The Amex is ok with auto-ex but only insofar as it does not hurt specialists. Brett Redfearn, an Amex senior vice president, speaking at the annual Security Traders Association conference in Boca Raton, last month, said the new Amex automation functionality - slated for introduction around April - will not be like SuperSOES. Orders would not execute automatically every time.

    "We have brokers in the crowd trying to execute against us," he explained. "It seems like that would cause the book to freeze temporarily."

    Freezing the book would prevent the problem of both a Nasdaq trader and a crowd broker simultaneously accessing the same order. If both were to claim the trade, the specialist would be liable to the loser for the stock or the cash. In freezing the book, the specialist is free to award the trade to a broker at his post.

    Automatic executions have become a pressing issue. With the Amex racking up volume gains in Nasdaq securities, market makers cannot ignore the venue.

    "Many times our obligations are driven by your marketplace," said conference attendee Arthur Pacheco, a senior managing director at Bear Stearns, addressing a panel that included Redfearn. "We must be able to compete with you or access you."

    Dealers Protests

    The nation's third largest stock exchange began trading Nasdaq shares in August despite Nasdaq dealers' attempts to block the move. The Securities and Exchange Commission approved it, ignoring traders' pleas to forbid the integration of the Amex's slow-moving open outcry model into the rapid-fire electronic Nasdaq world.

    The Amex is now one of four exchanges trading Nasdaq securities under the Unlisted Trading Privileges (UTP) Plan and the only one to do so in a face-to-face auction environment. It now trades 57 names and plans to ramp up to some 120 by the end of the year. Its most prominent name to date is Cisco, the large cap tech stock.

    Top Twenty

    When Cisco debuted on Oct. 10, Performance Capital Group, the Amex specialist charged with managing Cisco trades, handled about one-and-a-half million shares. That was a small chunk of the 140 million shares traded that day, but the volume places Amex among Cisco's top twenty trading venues.

    Goldman Sachs, the largest market maker in Cisco, traded about five million shares of the stock on an average day in September, according to Nasdaq. Bear Stearns and UBS Warburg each traded about one million.

    Amex is now a player. Getting a seat at the table, however, did not come easy. The Nasdaq dealer community - Knight Trading Group was the most prominent critic - did its best to keep them out. The dealers' beef was with the Amex's lack of an automatic execution mechanism as well as the likelihood of slow fills. Nasdaq market makers can buy or sell stock instantaneously within the Nasdaq system, but can only route orders to the Amex. Once there, orders take, on average, 10 to 15 seconds to fill.

    The dealers, despite the SEC ruling, are still on the attack and the auto-ex issue is not going away. At Boca, it was front and center.

    Nasdaq market makers put Redfearn on the defensive as he tried to convince the crowd that the exchange's auction model could coexist alongside Nasdaq dealer desks. Traders weren't buying it.

    "Every system we have simply delivers an order to you," Pacheco said. "Speed of execution may not mean that much to you, but it does to us."

    The Amex refuses to make its specialists' books accessible over SuperSOES or SuperMontage, Nasdaq's new trading system. The reason, Redfearn says, is to avoid the risk of dual liability.

    An Amex specialist does not want to take the chance that a single limit order residing on his book could be claimed simultaneously by two parties - a member of the crowd and an outside market maker. That could happen if the specialist awards the trade to a crowd broker at the same time a Nasdaq dealer is zapping the order over SuperSOES.

    Nevertheless, the issue is not unprecedented. Most ECNs have refused to participate in SuperSOES for the same reason. They do not want their subscribers competing with market makers over SuperSOES for the same order.

    ECNs, though, are not required to participate in SuperSOES. Nasdaq has allowed them to receive orders over SelectNet, its order delivery system.

    That gives them time to reject a Nasdaq dealer's order if they choose. That same courtesy was not extended to the Amex. Despite Nasdaq's ownership of the Amex, it would not let its little brother market link to SelectNet, according to Redfearn. It was SuperSOES or nothing. (Amex's turnaround time is still much slower than that of an ECN accessed by SelectNet, however.)

    The Amex does not seem perturbed by complaints of slow turnarounds. Redfearn says the Nasdaq program is primarily geared towards institutional traders who want to buy or sell in large chunks rather than bits and pieces. Auto-ex is mostly suitable for orders of 1,000 shares or less, he claims.

    "Given the fact we are not an auto-ex market," he explained, "we don't compete for speed in small orders. If someone is looking for an execution of 100 to 500 shares in sub-seconds, we won't be as fast." The exec says that in the 2,000-, 5,000-, and 10,000-share range, Amex execution speeds are "comparable or better than those from market makers in the same stocks."

    The Start

    Whatever the case, the debate has moved forward. In August, few market makers could even access the Amex. Most Nasdaq desks were unprepared for the start of trading on Aug. 12. The SEC had granted its approval just four days earlier and few desks apparently had connectivity to Amex's PER system.

    At Boca Raton, Redfearn told the crowd of mostly Nasdaq dealers they should have been ready. The Amex, he said, had spent the past year trying to educate the community about connectivity.

    "Despite our efforts to communicate, as soon as the Amex quote appeared in the montage, traders were going: Oh my God, what is this? How do I get to that quote,'" Redfearn chided the crowd.

    Now, though, most Nasdaq desks either have connectivity to the Amex or are in the process of linking, according to Redfearn. Various systems vendors - including SunGard Trading Systems, Lava Trading, Davidge, OM and Royal Blue - have built access to the Amex into their offerings.

    And if the market maker is not a member of the exchange, the Amex is offering a free electronic membership. That allows them to trade without buying a seat. The offer is for a limited time only.

    Whether it reflects an inability to access the Amex quote or a refusal to do so because of the wait, the access conundrum has generated another problem: locked and crossed markets.

    "I don't understand what makes the specialist on the Amex so different," complained one frustrated Nasdaq market maker at Boca. "We must follow certain rules concerning locked and crossed markets."

    Quotes become locked (bid equals ask) or crossed (bid is greater than ask) when the Amex specialist does not change his quote in response to quote updates by market makers.

    Market Access

    Under Nasdaq rules market makers must trade with the party locking or crossing their quote or move their quote to "normalize" the market. That's the "trade-or-move" rule. The Amex has no such rule because there is only one specialist per stock. It is impossible to lock or cross the market in shares listed on the Amex.

    Redfearn says Nasdaq quotes lock and cross because the market maker doing the locking and crossing does not have PER access. The specialist quote remains unchanged because the market maker is unable to access it.

    "There are still a number of market makers without a linkage to the Amex," Redfearn explained. "Often the Amex quote is ignored or traded around. This creates the frequency of locked and crossed markets."

    On the bright side, Nasdaq market makers don't have to worry about being penalized for ignoring an Amex quote. Under Nasdaq rules they are allowed to do so.<

    Peter Chapman
  7. nitro


    Is there a cliff notes version if this?