Discussion in 'Trading' started by Steve Kellogg, Mar 13, 2001.
The opening print is done manually. Im sure of that.
I rented "Rogue Trader" based on a true story.
I would recommend it to learn about floor trading.
(Back room account)
I remember reading somewhere about the opening price being set by a computer. I don't remember where though. I would like to figure out exactly how it is done.
Does anyone have any info from a source about how opening price is set?
Mutual Funds & Personal Finance
Friday, March 16, 2001
For The First Time, NYSE Opens Specialistsâ Books
By Ken Hoover
Investor's Business Daily
The New York Stock Exchange is about to yield what was once considered its most cherished and profitable secret: the specialistsâ order books.
Specialists run the auction in each NYSE stock. That gives them more supply-and-demand information than anyone. One of their tools is an order book, which lists and updates all of the limit orders for each stock they handle. Each stock has its own order book.
Itâs valuable data for assessing the market moment by moment, even if it doesnât tell the whole story. For more than a century, only specialists had it.
In June, the exchange will start posting the books on its Web site. Anybody can see them real-time for free for every stock, says NYSE Vice President Robert Britz.
Middlemen will sell the data to institutions and active traders in various formats they want.
This will let investors check a stock before making a trade. Youâll be able to watch the ebb and flow of supply and demand aroud the current price. If you donât like what you see, you can step back until the situation improves. This might help you get a better price on your stocks.
Why is the exchange doing this?
James Angel, a Georgetown University finance professor, thinks the NYSE is looking over its shoulder. It sees foreign exchanges closing their trading floors, moving to computer systems like the Nasdaq. It sees the Nasdaq getting nearly twice the NYSEâs daily volume.
"Competition is a great motivator," Angel said. "They know they canât do things the way they did them in the 20th century and still be around for the rest of the 21st."
Some people think the NYSE is a dinosaur. Many traders at mutual fund companies think theyâve gotten better prices on the Nasdaq since new order-handling rules were adopted in 1997.
Opening the books is one of several major changes the NYSE is working on to keep pace.
How can you use a book?
For ordinary investors, it might not be that useful. But short-term traders might check how many orders are above and below the market price before making a trade. A book will give you the number of orders at each price. It will also show how many shares are available at each price.
If thousands of shares are for sale just above the market, you might hold off. That supply could reduce the chances the price will rise in the short run.
At least thatâs the way it works in theory.
Right now, the NYSE is under siege over how decimal trading works. Big mutual fund companies are furious that specialists and floor traders are stepping ahead of their orders. And itâs affecting whatâs on the books.
In brief, this is whatâs happening: A mutual fund tries to buy a block of stock at, say, 20. A savvy floor trader steps ahead, buying at 20.01. Since traders can see that the fundâs big buy order is still outstanding, the price is likely to rise.
The trader waits to see if the share price rises to, say, 20.10. If it does, he then sells for a quick profit. Meanwhile, the fundâs order remains unfilled at 20. If the fund really wants the stock, it might be forced to buy at 20.10.
With decimal trading, there are 100 spots between each point instead of 16 with fractions. That gives a sharp-eyed pro plenty of room to maneuver with little risk. If his scheme fails and the price drops, he can sell to the fund at 20. Heâd lose only a penny a share.
As a result, big traders are reluctant to post limit orders on a specialistâs book, at least for now.
"Itâs a list of fools," barked John Wheeler, head trader for American Century Investments.
Wheeler and the rest of the mutual fund industry are demanding rule changes to protect big limit orders. NYSE Chairman Richard Grasso assigned committees to look into the issue. He promised results by April.
Even with the books, investors at home wonât get the whole picture. Institutions often use brokers to work their trades on the floor. Or they arrange trades by phone directly through brokers. Either way, theyâre making trades that arenât posted in an order book.
"Itâs not whatâs shown thatâs interesting," said Wayne Wagner, chairman of Plexus Group, a consulting firm. "Itâs whatâs not shown. And the reason itâs not shown is itâs too interesting. If a mutual fund has 500,000 shares to get rid of, itâs not going to show it to the specialist or the floor."
Big institutions donât want anyone to know what theyâre trading. It will drive the price higher or lower.
If nothing else, order books will be displayed on a spiffy Web site at nyse.com. Itâs called MarkeTrac and gives a 3-D view of the exchange floor and information about stocks.
But donât underestimate the booksâ value, even with limitations that seem to exist now. Most experts think the controversy over decimals will be resolved.
"Anything that furthers transparency is good for all," said Andrew Brooks, head trader at T. Rowe Price. "Weâll use it to find depth, where the orders reside. But itâs early. We havenât seen it yet."
The Nasdaq is coming out with a similar system to give investors more information about market depth on its stocks. Itâs called SuperMontage and is due for rollout early next year.
The electronic communications networks, or ECNs, like Island, have led the way in opening their order books. Island publishes its books on the Internet at island.com.
Rob Hegarty, a researcher at Tower Group, which advises big traders, sees another benefit from opening the books.
"Changes that improve transparency and that give more information about the market tend to increase trading," he said. In other words, people are more likely to buy if they know the score.
Opening the books is one of several innovations at the NYSE.
Another is a new kind of order called Direct Plus. Itâs designed to give the retail investor a chance for direct access to the floor and automatic execution at the market price.
Itâs for the investor who wants speed and certainty and doesnât care about a chance to better the market price by a penny or two.
"It requires no human intervention whatsoever," Britz said. "It happens without the specialistâs action." The average trade should take 2.3 seconds instead of 15, he adds.
The maximum size is 1,099 shares. Thatâs 1,000 shares plus an odd lot.
But online brokers arenât excited.
IBD checked with several. None plan to put it in their Web sites.
"Weâve worked hard to ensure our customers get fast and accurate execution, and we think we can do that best through the specialist system," said Jim Griffin, Fidelity Investments spokesman.
rtharp... OARS may be the automated sytem you referred to that assists the specialist in establishing the opening price for NYSE stocks...
Opening Automated Report Service (OARS) , a feature of the Display Book, automatically and continuously pairs NYSE member firms' buy and sell orders prior to the opening of each day's trading. OARS accepts market orders for rapid, systematic and immediate reporting at the opening and assists the specialist to determine the opening price.
Thanks Wireless yes that's what I was referring to. So the specialist does set the price but he has computer generated help.
How will trading on NYSE be affected as a result of investors having access to specialistsâ books ?
It won't be affected. It will just lead to institutions not giving their full intentions on the "book" but instead orally. Like, I have 200k to buy "around" 20.5 so the specialist shows 10k to buy there, and knows to work in an order just above that price, so he can print there if the market tanks. If the specialists aren't given true prices, it will just lead to more volatility
Having the specialist book available would be interesting but I doubt it would even increase volatility. Most institutions disguise their large block trades from the specialist today, anyways. Most buy-side institutions usually use large-block brokers or third markets. I would really be surprised if any buy-side institution uses the floor for execution of large blocks.
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