If the current automation proposal (ie; expanded # of shares and elimination of the 30 second delay for the Direct + system) is approved, what is the estimated impact to the specialist's trading volume they currently have? Additionally, of the volume the specialist trade, they only actively "participate" in about 30% of it. This 30% is where they make the money and "serve" as principle. Will the proposed increased automation affect this profitable 30% or just the trades they can only act as an agent on anyway? After reading in the WSJ, "this is a proposal similar to one specialists have been suggesting for some time", it is unclear if this proposal does indeed truly impact the specialists' profitability and ability to trade.
I read throu several news articles this morning, the tenor they talk is that DOT should process all sizes and immediately. The floor brokers should be "helpful when working large sizes". Anybody any new / additional information ? Especially when they want to introduce this ?
Here is an excerpt from today's WSJ on the topic. It looks like the specialists are going to throw the floor brokers overboard in order to save their skins. IMHO, anything short of eliminating the trade delay rule is a sell-out. The interesting part about any rule change is this - "A vote of exchange members, a group of 1,366 both current and retired brokers and specialists who own seats on the Big Board, wouldn't be required." ___________________________________________ 'A Little Scary': NYSE's Chief Seeks to Sell Electronic Trading to the Floor By KATE KELLY Staff Reporter of THE WALL STREET JOURNAL A proposal to allow more electronic trading at the New York Stock Exchange is creating a rift between two groups of people who have worked together for two centuries to trade America's blue-chip stocks. The lines have been drawn in recent weeks, as newly-installed NYSE chief executive John Thain considers a plan that would represent a shift at the 211-year-old Big Board, the last major stock exchange to rely so much on humans to handle stock trades. (See related article.) The move could pare the importance of the floor broker, the agent whose role is to ferry investor orders to a specialist firm, or stock-trading referee, for matching and execution. "It's a little scary," says Karen Nelson Hackett, a broker for JNK Securities. "We bring the orders to trade in the crowd, and if they're going to take that away from us, what are we going to do?" Many specialists are embracing the proposal, saying the change is necessary to appease big investors like mutual-fund giant Fidelity Investments, who have been calling for quicker executions and more automated trading in recent years. Specialists also say more electronic trading may slow efforts to change regulatory guidelines that competing markets believe give the Big Board an advantage. The plan under consideration would hurt floor brokers more than specialists because it would allow NYSE stock investors to get automatic executions for buy and sell orders that represent the best prices in a given stock at a given time. That price, known as the "inside quote," is the cheapest buy-and-sell match at which a stock can change hands at a particular moment. In the majority of NYSE floor trades, inside-quote orders are now matched by brokers representing their customers in a human crowd, and are reported to the public ticker tape by specialists. The automatic execution plan would address complaints by investors who say human auctions cause the inside quote to change so frequently that investors often can't get the advertised price. A related plan that Mr. Thain is considering would modify the rules associated with the floor's current automatic-execution system, which handles only small trades. If the inside-quote trading plan goes forward, the current 30-second waiting period imposed on investors who use the automatic execution system could be altered or eliminated in some way, according to people familiar with the plan. An NYSE spokesman had no comment on the proposed changes. The ideas under consideration indicate the NYSE's desire "to offer a menu of execution options to its customers that's as broad as possible," said Robert Fagenson, vice chairman of Van Der Moolen Specialists USA, a unit of Van Der Moolen Holding NV, in an interview late last week. Such changes are still in their conceptual stages, said Mr. Fagenson and others familiar with their details, and no firm decisions have been made. But if Mr. Thain moves ahead with the plan, it will be a bold step toward modernizing the NYSE. The plan to automate inside-quote trading could be presented to NYSE directors as early as Thursday, when Mr. Thain will meet with the exchange's board for his first regular meeting as CEO. If the board approves the idea, it could then be presented to the Securities and Exchange Commission, which approves all rule changes at the NYSE. A vote of exchange members, a group of 1,366 both current and retired brokers and specialists who own seats on the Big Board, wouldn't be required. But given what Ms. Hackett describes as the "raucous" reaction that some brokers have had to the proposal in recent days, Mr. Thain is likely to get an earful of complaints at a membership meeting he will host this afternoon. Specialists who are backing the plan said it could also dissuade the SEC from adopting changes to a regulatory guideline that has traditionally given the Big Board an advantage. The requirement, known as the "trade-through rule," dictates that markets not ignore superior prices that are available on competing markets. (When a market ignores a superior buy or sell order available on a competing market, it is "trading through" a price that would be preferable for investors.) The NYSE, by considering the plan, is acknowledging a key attraction of its electronic competitors, the Nasdaq Stock Market and a handful of electronic communications networks, or ECNs: an immediate, electronic trade execution for buyers and sellers whose orders match. Nasdaq and ECNs have been lobbying for a repeal of the trade-through rule, saying that because the NYSE sometimes has superior stock prices, electronic markets like Nasdaq's, which pride themselves on fast trade executions, are unable to operate speedily because they must wait too long to match with Big Board stock orders.
If you don't add value - then you are no better than the beggar who holds his hand out and expects to be rewarded for doing nothing.
Then I'm sure you understand the value that they create and will charge for. If you are the only one taking on risk don't you think that you should be getting paid for it? Nobody else is there to take down size. We all know what happened with NASDAQ after that class actioin law suit? All major market makers downsized and then you got illiquid markets on all but a hand full of the MSFT, CSCO, markets that trade 4million + a day. There's a term called "Never Cry Wolf" that I feel will happen with the NYSE and the public. More likely then not, the changes will affect the public and not in a good way either. They will always get rewarded(risk takers) and if they don't you will see liquidity disappear just like NASDAQ.
JMartinez, Being rewarded (the profit motive) and maintaining law & order, are diametrically opposed principles. It amazes me how a system so flawed and contradictory, has been allowed to flourish for so long. There is little to no room for a Specialist system in today's world. And I totally disagree with you on your liquidity statement. Removal of the Specialist system will encourage more trading, and will reintroduce the market to a concept known as "limit orders", which the Specialists have single-handedly destroyed. And by the way, I challenge you to trade in a low-volatility NYSE stocks today......you will see every trick in the book used by Specialists in this environment. It is truly repulsive, and has driven me away from trading such stocks (yes, the system you love and endorse !!!!). Seeing is believing, but I think Thames may be on the right track. Let's hope he isn't paid off like his predecessors (Grasso and Reed) were. I'm not holding my breath for change, but there is certainly a ray of hope here.
I personally like the specialist system, there are many advantages if you learn how to read a specialst. They will also stand infront of an order and buy to let you out right before a gap down, if you are observant enough. They also control the the flow.. If the banks or brokers started trading on Nasdaq, the price swings would be rediculous. Nadaq also have market makers that don't fill you for an eternity or just cancel your order. Screw that. I will take the specialst any day of the week over Naz market makers. Now if everything was as fast and clean cut as INET that would be a different story, but as for NaZ MM's they can kiss my ass before they ever get liquidity from me.
I'm not stating that I love the specialist system or endorse it. But you can not compare the OTC market with the Listed market. They are very different. Nasdaq has it's benefits and flaws as well as the Listed Market place. I'm sure the NYSE specailist would love to have competition. But you know what? Nobody has come in and stepped up to the plate and put their balls on the line. Nobody has. Go send your order to Trimark, Madoff, or a regional and let me know how long they will play ball for? When you are the only one on the street with the biggest balls then you can make any market you want! It's a very simple fact. But nobody is out there, therefore you play on their terms. If you don't like it, go put you limit on an ECN and everyone and their grandma that know how the listed market place works will pick you OFF. ECN's are good but they only work on the most liquid stocks(QQQ, SPY, IBM). You will always need specialist and market makers. They will never go away because they create value. What value? They create liquidity that nobody else is willing to pull their little balls out and step up to the plate. You can't do it with an ECN or else you would of seen the ECN's destroy the listed market place when NASDAQ got wiped out. What are the good things that you see in the NYSE? Do you only look at flaws? Nothing is perfect. Is your wife or girlfriend perfect? I'm sure not. Is nasdaq perfect? Think about it. It's hard to make something perfect, it's a balancing act that will never be in equalibrium. I try to only look at the good things. There are bad things about the NYSE but you know what? You deal with them. Just like you deal with bad fills in the OTC market. You don't hear me crying. Get rid of the specialist? Ohhhh yea, I'm sure that will do alot of good. But you know on the most liquid stocks that will be fine but not on the other 80 percent of the stocks out there. And it's driven you away from the market? Well here's the news, you've missed opportunities. Home builders? Where do you think those fat moves were? Oils, Oil service? Gold? Utilities? Tranies??? All I can say is, missed opportunities.............
You are funny Martinez. A specialist is someone who challenges a group of guys who have a ball and chain clamped on their ankles to a 100 yard dash and then brags how good he is to win 80% of the time. If specialists really got "the biggest balls" - then get rid of the 30-second trade-delay rule. Level the playing field. Quit hiding behind yo mama's skirt. If they do this the hyper-competitive ECN traders are going to eat the poor little preppie specialists alive. I predict a surge in distressed yacht sales on Long Island.