Try this: (Mike, check your PM) www.stocktrading.com/hybrid.htm edit, revised link. And this... Let me start with a major change that I personally am not a fan of. This is the practice referred to as "walking the book". This will, in my opinion, greatly diminish the liquidity offered on the NYSE. For the last few decades, traders were given "price improvement" on their limit orders quite often during the day. A simple example is this: If the NBBO (National Best Bid or Offer) reflects $47.10 bid, $47. 14 offer, our traders would enter a $47.05 bid and perhaps a $47. 17 offer, and keep moving their bids and offers slightly away from the NBBO. When large orders would come in, the Specialist would accommodate them with a single trade at a higher or lower price. A buyer of 50,000 shares would pay $47.25 for the entire amount of shares, and anyone willing to provide liquidity (by having their orders already in the book) would be given the better price. In this example, our trader would have sold (short) the stock at $47.25. The additional benefit was that we were more often than not, trading "with" the Specialist, since he generally "accommodated" large orders by (in this case) selling along with the other orders in his book. For the most part, our traders won't be leaving any orders on the NYSE any longer because of the new "walking of the book" rule. The 50,000 share buyer (above) might do this: Buy 1,000 for 47.14, another 1,000 at 47.15, perhaps another 5,000 at 47.17 (partly from us in this example), and then buy more stock at $47.20, 47.30 or even $47.50....at each price level. This would take away any incentive for our traders to provide this liquidity, and cause for a worsening of price levels. I am advising our traders to go elsewhere with marketable limit orders. Since some ECN's pay for providing liquidity, it only makes sense to send our orders to one of them. All that being said, when one door closes another usually opens. Some of my people are already writing (or modifying) their programs to enter trades only when a certain, rapid, price change takes effect. This would put them into trades at the ends of these more volatile price moves. The other benefit will be to our "Pairs traders" (see www.pairtrader.com) , who focus more on pre-determined price level entries, as opposed to obtaining price improvement when providing liquidity. As in an earlier article (Survival of the Fittest, adapt or die - TASC January 2003), we will continue to modify our trading strategies as the market evolves. I am hoping to put together a more detailed analysis of the new NYSE changes after we have some trading time behind us. And... The floor broker, as agent for larger institutional orders that frequently trade in Rule 127 fashion (in which a sweep-price execution is still possible) will still be able to provide price-improvement opportunities to resting limit orders entered by liquidity providers. An HBC e-mailed me that there are other electronic ways for liquidity providers to get price improvement: ⢠One is the Discretionary e-Quote, which is basically an electronic manifestation of what the brokers can do manually in the crowd. The Discretionary e-Quote is pending SEC approval; some background about it is in our Hybrid Training Program booklet, Chapter 25, here. ⢠The other is via the specialist's use of algorithmic messages, subject to certain restrictions. Our training booklet has a chapter about that as well, Chapter 15, here. Don
Mr. Bright.... you commented on some ECN's offering rebates.....can you name these.....I only see the BATS ecn offering a rebate... Are there others?
Specialists are useless. They are extremely annoying. And the worst thing, there are absolutely no need for them. I can not understand why you americans still hold on to them. In some thin stocks you can sometimes give them a finger if they are very busy in some very active papers.
I can't comment at this time, negotiations are still taking place. I'll let you know when our talks conclude. Don
Dinosaur, more like a permanent fixture. Orders in effect go through "him" regardless of regional exchanges ECN's Theory: 1. Supply and demand determine price. If more people "wanna" buy than sell, price goes UP Long run the price reflects the value of the company 2. Maintain a fair and orderly market. 3. Merely eek out a living from the spread as a public service clerk Reality: Decisive CONTROL. This is a predator/prey arena. The merchandising of paper. He's "da" man 1. Public demand enables specialists to sell out their long holdings. 2. Then SHORT ( without upticks) 3. Once accomplished.........., down. 4. Covers. 5.Simultaneously re-accumulates inventory. 6. Works it back up. He is prohibited from dealing with the officers of a company. He never has to meet face to face with an irate shareholder. He will consult with member firms toward acquiring/disposing of BLOCKS. He may not be the best trader but his "book" is one helluva indicator. Specific knowledge about how many shares are "available" to him and at what price points. All he has to do is "get 'em" A block can offset in ONE transaction. (Cleans out stops) Transactions between specialists and member firms NEVER appear on tape. In a liquid stock, he can hang 10,000 traders/investors with one rumor. Build selling activity. Then........spread a counteracting rumor to advance the stock. In a less liquid, moves are more pronounced. Accelerated. Also occasional halts and re-opens. Usually with a news item as an alibi. Gaps: with the flick of his pencil can evaporate (or add) millions. True order imbalances result in delayed opens. Often to call around to locate stock to short. A gap is a maneuver. It's a simple matter to trigger stop orders. Once live, they're filled at market. They use short selling to acquire stock for their own accounts. Often accomplished in chaos. This can only take place when there is public demand (to sell into). A specialist with a long term position (in a tax segregated account) has a stake in seeing that the security rises. Selling at the highs is the logical outcome of the existence of segregated accounts. Leverage is a matter of conjecture. I would guesstimate 20 to 1. Since 1949 (first attempted in 1940) they have been exempt from Fed Regs T and U. What'd ya know, we had a secular bull from 1949 to 1966. September 18, 2001, made out like bandits under the guise of a week long hiatus and such tireless efforts to re-open the market. Across the board gap down. Thee only "V" bottom I've seen work. NASDAQ commenced in 1971 and the OTC was considered cats & dogs. Market cap on NYSE dwarves aggregate Naz. NYSE Specialist is the old order. Electronics has nothing to do with. Nor does decimalization. I'll spare you inter-locking directories and the advantages of hypothication. Simply put, IF they are going away, I'll believe it when I see it.
I know it seems like I'm defending the Specialists quite often (sometimes yes, sometimes no)...but, as I've said many times before Be careful what you wish for...if we have "perfect" markets, then it will certainly make it harder for risk takers, traders, liquidity providers, etc. to make a good living. Another often misundertood point that I try to make...it's not the Specialists, it's the fact that there is a single marketplace, rather than a fragmented market place. How would you like to go buy stock at $47.50 while it trades at the same time at $47.25 in some back room somewhere? I realize, of course, that Rule NMS is supposed to stop that from happening, but with "book sweeping" it could certainly happen. And, BTW, I find it a bit "odd" that the NYSE is changing rules first, and implementing NMS 4 months later, in Feb. Anyway, the Pairs guys are estatic from what I hear...picking prices vs. price improvement works well for them. All the best, Don
Don - how do you feel about Posit and Liquidnet? are they participating in the market in an open manner? do they report their trades in a timely fashion?
They "post" trades, that's for sure....(block trades primarily), but hard to determine exactly "when" the trade was "done". They can "put up" trades in between the hi-low for the day....I'm not very well versed on this aspect of clearance. Don
"hard to determine exactly "when" the trade was "done" agreed - i think this part of the market needs SEC attention, personally...