NYSE Specialist System is probably going to be gone

Discussion in 'Trading' started by simpleplan, Nov 23, 2003.

  1. Interesting article on the shadyness of the Specialists.


    Tidbits from article:

    "My main concern is that specialists are a for-profit proprietary trading arm of the NYSE that investors large and small trust with their order flow day in and day out," Wheeler said. "With the system so rife with conflicts of interest, it's hard for average investors to have a fair shake."

    "The beauty of a computerized trading system is it's not biased," he added. "It treats every bid the same; the NYSE doesn't."

    "A lot of our members have been frustrated with the NYSE system," said Sarah Teslik, executive director of the Council of Institutional Investors, which represents 130 pension funds. Her group is pressing interim NYSE chairman John Reed to revamp the open-auction system.

    "Computers don't have a temptation to cheat, they don't have a temptation to tattle, they don't have sick days, they don't have PMS and their volume (capability) is heavier," she said. "It's hard to imagine that humans can match what computers can do."

    Indeed, the heart of Nasdaq trading operations lies in Trumbull, Conn., where a vast array of computers can connect millions of buyers and sellers from Anchorage, Alaska to London to Beijing. Investors can choose to trade instantaneously without a specialist coming in between.

    Despite the promise of speed and fairness, electronic communications networks offered by Nasdaq, Instinet and Archipelago have nowhere near NYSE's trading volume. Pension and mutual funds say they have no choice than to trade at the NYSE since few buyers and sellers go elsewhere.
  2. Oh well. If a business doesn't like the way the NYSE runs it's business, it is free to list elsewhere. It'll be up to the NYSE to keep its customers and attract new ones.

    The article has several odd premises. For example, why would anyone expect the engine of capitalism to <i>not</i> be for profit?

    Implies (by omission) that NASDAQ is immune to abuse by dominant market makers. Forgot to mention the time that squirrel gnawed through the cable in Trumbull. Do I need to go on?
  3. Very true, especially about NAS MMs. They have been cited and fined for "backing away" and other abuses. And they are providing the same service as the specialist, and are of course "for profit."
  4. jem


    There is a difference between competing with a mm via an ecn or soes and saying please Mr. dirtball here is my order and my size and please give me nice fill, after yours of course.
  5. Technology is making this transition possible...

    There are MMs that exist today simply because of being able
    to short without an uptick...not only that...their trades are focused on a few stocks with their total trades in that name being bundled at the day's end..which makes their trading costs almost nonexistent...

    To be sure...if your game is to take money home...clearly you are not adding value...

    Its the mutual funds that price many of our stocks...not specialists...not MMs..
  6. Yes, there is a difference. Isn't that awesome! You can choose! If you don't like one, you can try another. Heck, you could even start your own.
  7. jem


    I agree with you chas. I just wanted to point out the difference in the logic. If I had it my way I would keep specilists, I would just not let them penny.