NYSE Execution -- Interview w/ John Wheeler

Discussion in 'Order Execution' started by Steve Kellogg, Jul 4, 2003.

  1. I had a good laugh when I read this interview (http://www.traderbulletin.com/stories/storyReader$770); particularly the line: "price improvement = front running." This is one of the guys that blew the whistle on NYSE specialist practices. Unfortunately most of what he says is true.
  2. nitro


    This guy is clueless. In the example he gives about bidding for a stock, only to have the spec lift the offer and offer the seller price improvement, what does he think daytraders would do if there were no spec, the hedge fund or whatever came in with their million share bid and put it in the book?(or spread the order out on ECNs, like that is going to fool anyone?) They would lift the offer just like the spec did, or in the case where he got the 10K shares or whatever was at the (NBBO) offer, they would step in front of him on the rest of his 999,990 shares? And if he lifted the entire book say twenty deep to satisfy his demand, how is that "price" any better than he got before without the spec?

    There is no question that the specs "front-run" orders and give price improvements, and that price improvement for one means front running for another, but why equate this with the retail trader doing 5K or 10K shares does IN REALTION TO HIS 1000000 share order?

    nitro :confused:
  3. Nitro, Wheeler would never give an order to buy or sell 1,000,000 shares. He would give the sell side broker a smaller portion (i.e., 100,000 to 250,000) and reload when done. He does use the alternative trading systems such as POSIT and Instinet for his listed orders. This is based on my experience with him when I was on the sell side.
  4. nitro


    Fine. Read the article. Why is he comparing the front running that goes on to the retail trader with their measly 1000 shares with his 1,000,000 share position that he would like to unwind or initiate? What connection is it that he is trying to make? That retail traders get their 1000 shares front run? Pluuuuuueeeeease. This guy sounds like QDZ.

    What this guy wants is there to be no slippage. He wants someone to stand in front of a 1,000,000 share Bid/Offer and take it up the ass. I would love that too - I would be a BILLIONAIRE within a year if that was true trading spoos. If only I could steam roll over someone, and if I were wrong, turn around and INSTANTLY get filled on my exit.

    Think about what happens on NAZ when a market maker makes a market. You think he is going to stand there in his electronic market and let some Bozo whack him with a million shares?

    These guys that complain about specs - I WOULD LOVE TO SEE THEM MAKE A MARKET IN A STOCK IF IT WAS SO EASY TO BE ON THE OTHER SIDE. These guys are daytraders - pure and simple, that is all.

  5. jem


    I agree with Nitro and wheller and I disagree. Nitro I would absolutely kick ass if I were a specialist. They have absolutely no worries I mean zero if the do not want to take on risk. I know they are suppossed to buy on the bid and sell on the offer and moderate a whacky market. But come on we have seen them in news situations. Do you think they make money or lose money on news. Besides they have so many ways to hedge ---it is free money for them. That is why you see them making large profits as a group. They were able to keep up their profits for the first half a bear market by becoming bigger bastards even though volume and range were contracting.

    I have as much compassion for a specialist as he has for my dot order.

    Wheller 'sposition is correct (in my opinion) but his argument was slanted. What about the price improvement a seller gets when you have your seller order at 86 and you get filled at the point because a bunch of buyers stepped in as the spoos broke to new highs. That is the price improvement the nyse should boast of.

    Nevertheless the penny jumping is obscene, crooked, scandalous, unamerican, an embarrassment, and should be stopped because it destroys the integrity of american markets. Everyone in the investment industry should seek to stop this b.s. on the nyse before some smart guys at a place like eurex take the business away from the crooks on the nyse.
  6. nitro



    I think any good trader would make a good specialist once he got used to the rules.

    I don't agree that they have no worries. I have heard stories from the OTHER side of the fence, when a broker comes to a spec, asks him where he can get filled on 250K shares, tells him to do it, only to come back with another TWO MILLION TO SELL. You think that is fair? The spec now is long the stock and has to try to keep an orderly market with another two millions shares to sell starring him in the face? My guess is these guys (specs) start out being "nice," get reemed up the wazoo, then, like bugs bunny the spec declares - "I guess you know this means war."

    I saw recently that a seat on the NYSE sold for 1 3/4 million dollars. I tell you, if it is like printing money, I don't understand why every Tom, Dick and Harry is not trampling over each other to go and get a seat and make a market in a stock. it's free money right? Geez, I think I could recoup my 1 3/4 million in a month!

    Penny jumping is obscene? Read the article, EVEN HE says penny jumping is NOT the same issue as FRONT RUNNING?

    Honestly, I don't get it - before people had no problem paying up an eigth to get stock. Now, they see someone stepping in front of them a penny and they start to cry? JUMP A GOD DAMN EIGTH LIKE YOU USED TO AND SEE WHO STEPS IN FRONT OF YOU NOW? Think about it, what this is saying is that you want to get filled on the bid when buying and on the ask when selling. Nice fairy tale.


  7. nitro


    Well, I can tell you that if Wheeler only gave the broker 250K shares, and the spec is GOING TO ASK THE BROKER HOW MUCH HE'S REALLY GOT, and he says 250K shares, HE BETTER NOT COME BACK WITH THE OTHER 3/4M back to his post that day (assuming a stock that trades 200,00 shares a day as in the article.)

    What they do on Instinet is not his problem. He is going to assess his situation and only take action when he thinks he can fill the order without being a punching bag and trying to get the broker the best price given the supply/demand on the stock at that given time.

  8. jem


    Nitro this is just fun and I am not trying to one up you but you just argued against yourself.

    You are exactly right. The spec always asks whats he got behind that. They are always working with the brokers and they know the relationships and everything else. If the spec did not want to take the risk he did not have to take that 250, 000. Besides if it is like the day I was hanging out at a few posts------- before the spec takes on size he makes sure he has a few institutions there to split the order up with and to know that they are there to buy with and or behind him.

    Frankly, I could not really believe what I was seeing go on down there. It was so blatant and out in the open. "What is behind it" And the floor broker tells him so everyone can be happy. The broker gets better fills so he can charge 5 cents a share and the specialist gets to be the only hog that doesn't get slaughtered in the entire market place.

    Two, the seats costs 1. whatever million to be a member, but being a specialist is a whole different deal. The specialists need to be able to get stocks to list with their group and to get stocks they have to show the listee company they can put x amount of dollars behind their activities. So the new listings go to the specialist groups who have the most capital. I had a long conversation with a specialist whose group was having it last independant day on the floor. They had recently sold out their concern to the Dutch group (van der moolen? sp, sic?) He said that even though they had been around a long time their millions looked small compared with the big guys. I guess, slk, labranche, vandermollen? etc. So you see Nitro I did look into becoming a specialist. (Besides my dad and his friends and lots of others in Greenwich joked about marrying a specialists daughter when I was in high school).

    Now, it did seem funny that the specialists groups were competing based on capital because every speicalist that I saw was making a profit on the day. And it also seemed like every single one of them had their clerks daytrading their asses off.

    I will believe otherwise when Dick Grasso proves it. I saw what was happening with my own eyes. The NYSE specialists are a bunch of daytraders with a house advantage.
  9. GHansen


    Nitro, You're way off base here. Pennies and pennying discourage the placement of limit orders. Without limit orders there is less transparency, less liquidity, trading inefficiency, and more needless volatility. That's the point Wheeler is making--and he's right on the money.
  10. nitro


    I am aware, both as a trader and as a student of the markets, of the effects of decimalization:


    This has NOTHING to do with what wheeler is saying in PART of his interview.


    #10     Jul 5, 2003