NYSE 'investigation'

Discussion in 'Order Execution' started by chasinfla, Apr 18, 2003.

  1. dalegrief,

    Some platforms do not have NYSE Direct or it may have to be "asked for". A regular NYSE execution can be alot slower. The NYSE website & the REDI+ website have rules for NYSE direct. Please ask your introducing broker for rules using NYSE direct.
    The execution speed for NYSE direct should be the same in almost all platforms, providing you do not have any bandwidth or network related issues. When you hit a bid or take an offer on the NYSE, a specialist clerk has to match the order electronically on the DOT system. Depending on how busy a stock is, a market order could take between 3 seconds and one minute(or longer) to be executed on the DOT system.

    Gene Weissman
    E-Brokerage, LLC

    PS howardy2k-I'm not Gene the MM, don't know him.

    #61     Apr 28, 2003
  2. bmwstox


    I think the media should treat this scandal as they treated the "Enron" and "Tyco" scams. Why should the NYSE be let quietly off the hook?
    #62     Apr 30, 2003
  3. Tea


    Little Big Board

    The floor of the New York Stock Exchange is one of the great symbols of American capitalism. So it must grate on Big Board Chairman Dick Grasso, who has done so much to make the NYSE into a brand name, that his exchange is now under scrutiny for not allowing enough capitalist competition.

    No one loves the opening bell and rational chaos of the floor more than we do, but the critics have a point. The Big Board has failed to adapt to a world of new technology that allows for faster, and more confidential electronic trades. By allowing only its traditional system of trading by "specialists" who dominate certain stocks, Mr. Grasso has been maintaining a monopoly that has opened the exchange to charges that its middlemen profit at the expense of stock buyers and sellers.

    The latest episode broke with recent stories in this newspaper that the Big Board is investigating alleged "front-running" by some of its specialists. Front-running occurs when specialists or other market insiders buy stocks in advance of big investor orders.

    The NYSE says those reports are untrue (the Journal stands by its coverage), and that it is merely looking into violations of what it calls "negative obligation," which is the specialist's duty to "stand out of the way" when buy and sell orders are made and not unduly intervene in the market. The latter is still against NYSE rules, but Mr. Grasso compares it to "jaywalking," while he says front-running is more like murder.

    Well, how about something in between? Whatever you call it, the practice still involves specialists profiting from their unique access to the trading arena. The NYSE stock-trading system is built on such a specialist monopoly and Mr. Grasso insists it both ensures liquidity in tough times and gives the best price to most buyers and sellers, especially the little guy.

    But it also creates a specialist invitation to sin, even if it's just by a penny a share. Traders might forgive that as an afterthought when a rising market is making everyone rich, but in bear markets such reports give investors one more reason to think the game is rigged against them. As for the liquidity argument, the NYSE tarnished that all by itself by shutting down after September 11.

    For large traders especially, the best share price isn't the only, or even the most important, priority. Some want speedy orders or the certainty of execution, while others may want anonymity, which means not having to tell a middleman in advance of their dumping a million shares of XYZ Corp. They can achieve the latter needs better on the Nasdaq and other electronic exchanges, and that is where some large stock traders have migrated.

    It's true that a company can list its shares anywhere it wants, the NYSE or Nasdaq or Timbuktu. But the Big Board's Rule 500 makes it very hard to delist once you've signed up; market wags call it the "roach motel" rule: You can check in but you can't check out.

    Moreover, the Big Board system is protected by government regulations, in particular the "trade-through rule" of the mid-1970s that resulted from Congress's desire to create a national market system from a variety of regional stock exchanges. That rule requires that a trade get the national best bidder price even if only by a penny a share -- a fact that benefits the listed exchanges.

    The rule probably made sense 25 years ago, but technology has advanced enough that it deserves some urgent revisiting by the SEC. Traders at least deserve the choice of what they want -- the "best price" of a listed exchange, or the anonymity and speed of an electronic trade. SEC Commissioner Paul Atkins plans to give a speech next week at the American Enterprise Institute in which he will call for reassessing stock market structure.

    No doubt Mr. Grasso will tell us to butt out of his business model. But as he also likes to say, the NYSE is a public trust, at least until it decides to go private as an IPO. Until that day, he is going to need all of his fabled marketing skills to convince the world that a monopoly in trading stocks is the highest form of capitalism.
    #63     May 2, 2003
  4. i don't know which is funnier..dick grasso saying that pennies are good for us little guys or the amex eliminating their competition(island on the qqq's) to make sure investors got the "best" price available!!!!!
    #64     May 2, 2003
  5. your bringing me back to the good old days (how many months ago) when ISLD dominated the cubes and SPY....so liquid you could stick a straw into your montage and take a sip...AAAHHHH
    #65     May 2, 2003
  6. from Trader bulletin http://www.traderbulletin.com/:

    "NYSE Chairman Richard Grasso promised to reveal “every gory detail” if any of the NYSE’s specialists are brought up on charges as a result of its current investigation. NYSE representatives are purportedly canvassing institutional investors to appease their concerns about the recent scandal.

    The NYSE has apparently established a subcommittee to improve its specialist rating system. The committee reportedly consists of buy-side, sell-side, and specialist firms."

    :mad: :mad: :mad:
    #66     May 2, 2003
  7. bmwstox


    Grasso is paid millions to keep the system as is. He doesn't give a rat's ass about any investor.

    - BMW
    #67     May 7, 2003
  8. Tea


    Here is a partial quote of today's WSJ editorial


    Penny Wise at the NYSE

    Dismal Science


    The New York Stock Exchange is an electronic wonder of sorts, processing around 1.4 billion shares every day. Yet at the center of all these pulses stands the humble human in the form of specialists and floor brokers, charged with the task of keeping capitalism oiled and humming. Techno-capitalism married to human agility and responsibility? Well, it depends on one's perspective. Traders, for example, who are trying to manage investor portfolios with a few keystrokes, think the humble human introduces the possibility of self-dealing.

    Consider the current dispute between traders and the NYSE over a practice called penny jumping. Instead of letting investors sell and buy from each other without interference, specialists insert their own trades between investors, improving the price for some investors while making a profit for themselves. The price improvement is possible because of hidden liquidity on the floor -- quotes do not reveal the interest of the crowd.

    Some might question the fairness of letting specialists and floor brokers make essentially riskless profits at the expense of public investors, but there is also a more immediate problem. Some investors' orders are left hanging. If the bid on Company X is at 30 and the offer at 31, and the specialist steps in to sell for 30.90, then the buyer has saved 10 cents. But the investor with a limit order to sell at 31 doesn't get her trade executed. She is left to watch helplessly as the price on her screen moves against her, knowing that trying to cancel and change her order would take too long.

    Penny jumping can be anywhere from annoying to enraging for traders. But it is just a small part of the conflict between investors and the NYSE. Although price is given priority, time is not. Specialists, and the orders on their books, and floor brokers hanging around the specialists' posts, are all equal when it comes to time. Thus an investor's order may be first in time in the book, but may still not be executed if floor brokers, or the specialist himself, want to trade. Since the floor is able to jump ahead of electronically delivered limit orders, the best one can say about execution is that there is a reasonable probability of a limit order being executed within a reasonable amount of time.

    Time is so crucial because orders contain information about where the price will be in the future. A big sell order, for example, can indicate that there's been a bad-news change in a company's prospects. Any delay in the execution of an order allows time for the information it carries to suffuse the floor so the floor can profit. Benn Steil, an economist at the Council on Foreign Relations, says: "Limit orders carry important information, so a delay in execution starts the process by which the price moves." In fact, many observers, as well as burned traders, argue that the best price rule is too narrow. Speed and certainty of execution are at least as important.

    Remedies to complaints are often blocked by the fact that the owners of the exchange are the intermediaries who make money from the investors who trade through the exchange. Worse, this inherent conflict of interest between owners and investors often leads to scandalous practices. In its 210-year history, the NYSE has lumbered from scandal to scandal -- making the technical fixes to put out one bonfire only to find a fire blazing away somewhere else. Although the exchange is self-regulating, Congress and the SEC have oversight, so rules multiply. And rules aimed at fixing the NYSE's auction market then make it difficult for alternative venues, like truly electronic networks, to prosper.

    It is however possible, within the technical capacity and the regulatory constraints, to make one nifty fix. More orders could be executed automatically. The more automatic execution, the less human discretion with its attendant frailties driven by greed or incompetence.

    Currently, small limit orders -- under 1,099 shares -- can be automatically executed under a system called Direct Plus or NX. These orders can be sent automatically into this program or routed there by specialists. The speed and certainty offered by NX is good enough to generate trading interest for large orders that are broken up to stay under the 1,099 limit. (There is, of course, a problem in breaking up orders; it generates waves of buying -- or selling -- and tends to move the price away from the investor.)

    Since the technology on NX is also good enough to handle unlimited orders, the NYSE could just declare itself open for all-sized trades on this system. If the thought of unlimited size is too scary, there are useful, more modest alternatives. For example, the exchange could pick a midpoint between its average range of 20,000 to 40,000 shares, and declare automatic execution for orders of 30,000 shares. If that's still too scary for the exchange floor, perhaps the limit could be set at 10,000 shares, the typical size of an institutional order. (The NYSE is about to debut a pilot program especially designed for large institutional traders.)

    Of course, what terrifies the NYSE floor brokers (who are also owners of the exchange, remember) is that the ability to penny-jump or front-run will vanish with automatic execution or -- really terrifying -- that there will be no need for humans at all. Investors would be better off without the former and, as for the latter, even with automatic execution there might still be a need to have specialists to smooth the market by doing proprietary trading.


    Ms. Lee is a member of the Journal's editorial board.
    #68     May 20, 2003
  9. WinSum


    Ms. Lee did a good piece on her report. It wasn't a fluff piece. She seems to know what she was talking about.

    #69     May 20, 2003