Because Soes executions will only occur when there is a MM at the inside price level and these days a great majority of the time there is no MM at the inside price level. Rather the inside prices are dominated by ECN's while MM's dart in and out. THus you have to trade SOES just like an ECN, picking off whoever is there at the inside by using the appropriate route at the instant you go to execute the order.
Although I don't pretend to know all the inside stuff on SuperMontage, it is clear that Nasdaq has a couple of major objectives: 1. Hide identity and size. This one is so obvious. They do not want you to be able to get in front of institutional orders. Now they play games, with SM they can just hide behind "size" and a reserve. 2. Handicap ECN's. MM's resent ECN's. The presence of ECN's has cost them big, as it gives us the ability to make our own market. Also, MM's resent paying ECN fees. Remember, most retail brokers do not pass them on, the Morgan Onlines and Etrades just eat them, although I suppose they pass the orders to ECN's they own so it is not a big issue. 3. Manipulate the order handling rules to favor themselves. The retail brokers must live in dread of a class action suit charging them with not getting best execution. Obviously SM is designed to insulate them from this liability. We may feel it doesn't concern us, but anything that takes liquidity away hurts us. Bottom line, Nasdaq once again has shown it is against open markets. MM's want to control the liquidity and therefore the spreads. Thin markets make for easier mainpulation by MM's. Getting rid of DAT firms will ease the pressure on commissions.
How is the spread going to go back to 1/2? After SuperSoes, the MMs are using ECNs a lot more, especially when posting bids and offers on the inside. NASDAQ clearly wants the business that is going to ECNs from MMs. They are in it to make money, so be it. However, if an ECN offers a MM an extra vehicle to execute an order, why would MM's resent ECN's? The ECNs now offer the anonyminity (what a word) that SuperMontage is trying to provide. The MMs just want to get their order executed more competetively than their MM competition.
If supermontage is really fast -as they promise due to scalability- the ECN liquidity thing should be no problem, since traders prefer ECNs mostly due to their speed. Lets hope it gets as good as they are advertising it.
MM's resent ECN's because they compete between the spread and cause it to narrow. When ECN's are eliminated, due to Supermontage and Primex's moving the market to their own turf again, we will be back in the "old days" where spreads get wider and the NASD and MM's run the show. They need to keep multiple networks competing, not have one central auction IMO, for prices to stay competitive.
ddefina, You get it. I'm amazed at how naive and trusting many are. This is not about speed or transparency, what bs that is. It is about handicapping ECN's, particularly Island. Notice that each ECN will only get one line, so you won't have ISLD on multiple tiers. I wouldn't be surprised if they try to raise Lev II fees because of this great "advance." In rapid order, we have been hit with Primex, the ridiculous NYSE Open Book and now SM. I'll say this for the exchanges and MM's, they're doing their best to make sure single stock futures are a big success.
It was interesting how everyone thought that the listed markets (best bid/offer display) would be converted to the Naz type of multiple (level 2) pricing....and when I was told that the Naz is actually going to the Listed style of pricing, I thought it was great. The reasoning is not so great, again in my opinion....and that is the Naz "centralizing" the markets so that all the players have to go back through the Naz instead of being accessible individually has the effect of the "good ole' boys club" again taking conrol over all the Naz orders. Overall an improvement in concept..we'll see how it plays out...
Does anyone know what tick size single stock futures will have? I agree that the options market nowadays is kind of like the nasdaq must have been when the tick size used to be 1/8. For example, I would really like to know the official reason why the tick size for options is 0.1 (or 0.05 for cheap ones). Also, how exactly do legislators justify things like the restrictions for off-floor option traders to the American people, who they are supposed to represent? If they are going to play a similar prank with single stock futures, they could nip that whole class of instruments in the bud. I have seen injustice and corruption in several foreign governments. In many respects, the American system is way better, and there really are good checks and balances at work throughout the system, with the securities markets apparently being the one huge malodorous exception, where the mafia obviously controls the lawmakers. I dream of a world where we will be able to daytrade options. Think of how it would encourage creativity and therefore add liquidity if we could trade options on an ECN with a tick size of 0.001! What is preventing this scenario? Well, let's see... We definitely have the necessary technology (thanks to Kennedy and so many others), the economy is prospering (thanks to Reagan and others, although it is still having a little difficulty recouperating from clinton), we do have equity options. Now why can't we daytrade trade them? Anyone? Look at this great country and what it stands for, we have the constitution with all its freedoms and opportunities, for which people have died, we have achieved women's suffrage, ended segregation, walked on the moon, and then we come up with repressions like the uptick tule the pattern daytrader bullshit, and the medieval style equity options market. What a disgrace!
As you may know I am a complainer of the first order - I have a very strong BS nose! However if I may I would like to play devils advocate to your argument (and mine earlier on). We (in both the Euro states and the USA) live in the ultimate human state for the 21st century. This is not communism nor is it capitalism or even democracy. The most coined phrase is a "liberal democracy". This basically means that you do not have unfettered freedom because it is bad for you. To put this in terms that are relevant to this thread if there was a liquid and entirely free market it would eventually destroy itself. For an indepth discussion of this read anything by George Soros. The other side of this one might be that he had made his money and was unhappy with anyone else making the serious wedge that he did in the market. Whatever your opinion it is because of the likes of him that our markets have various controls that effectively reduce speculative behaviour. My theory is that this is perhaps why stock indicies are the least likely to follow decent trends out of all the major tradeables. But perhaps this is another story. Now stepping back a little, what is the government to do? By favouring complete freedom of information they favour daytraders etc. Who would want to be a market maker then? Follow that on and perhaps the people that the govt want to encourage - the investors in companies; therefore economies and jobs would have no faith in markets and would no longer invest for the long term. Investors are obviously going to be favoured over daytraders in any govt policy. That simply gets extended in stuff that exchanges like the nasdaq do. After all is the general public going to think it is a crime that a major pension fund is able to dump a poor performing stock in secret so that they do not lose money? It is just the way things are. Perhaps you should blame the sixties. All that free love had to end up somewhere!