When can MM's back away from the market?

Discussion in 'Order Execution' started by davez, Oct 15, 2003.

  1. davez


    I know that MM's have an obligation to honor a posted bid/offer, meaning that they are not supposed to back away from that bid/offer if the market moves to it.

    But presumably, at some distance away from the market, they can cancel a bid (or offer) and post a new lower bid (or higher offer).

    At what distance away from the market would cancelling orders not be considered backing away from the market, anyone know?

  2. well tecnically they cant, but they have rules they can use in a "fast market" to reduce the direct+ obligation they have. Basically if teh market takes off or the stocks takes off, they place littel symbol next to their name in teh box which designates they are not obligated to give prints to direct+ orders..

    the alternative is to send a regualr NYSE order and I think he has 30 seconds to handle it. If you are a swing trader or a position trader your exact fill doesnt matter as much and you can afford a littel slippage. If you are a daytrader/scalper this means you get ripped off b/c he will only fill you if HE KNOWS the market will go against you in teh near term. If you are right on your guess, he simply wont print you and get you to chase it.......

    This what sucks about the NYSE spec. system. The direct+ option helps a little, but it doesnt solve the problem..

    bottom line: if the specialist disallows trhe direct+ count on using ARCA.....
    hope this helps
  3. ever notice how AMEX posts quotes on nasdaq OUTSIDE the market but never AT the NBBO??

    pretty clear example of how AMEX basically doesn't matter in ANY market, let alone the naz...

    the AMEX could disappear tomorrow and no one would even notice, let alone give a shit.
  4. davez


    Bungrider, further to your comment on the AMEX, it would be interesting to know what percentage of the time that Nasdaq MM's actually trade in their own name, as opposed to trading thru inca or size or other ECN's. In the extreme, they could quote well outside the market all day in their own name, and trade furiously thru inca. I'd guess 80% of the time they trade invisibly??. You can't blame them - why advertise what they are doing. I suppose that precentage would change, depending if they are retail or institutional MMs.

    To maintain their status as MM's in a stock, I suppose there must be some minimum amount of trading in their own name. Anyone know?
  5. davez



    My question was with reference to nasdaq MM's. For the very reason you mention, I don't trade listed stocks
  6. okwon


    I am not a nasdaq expert, but I think backing away is only when a posted bid is hit and/or posted offer is lifted. In other words, if the posted bids and offers are not hit, then the MM's can change their quotes whenever they like, even if they are the inside bid or offer. However, should the posted bids/offers be hit, they must honor their price and fill at the quoted prices otherwise it would be considered backing away and a violation.
  7. I used to be a Nasdaq MM and the rules (at the time our firm was shut down) were about 6 months after supersoes had been intrduced. AS FAR AS I KNOW (it could have changed with who has to interact with who), backing away was impossible b/c a MM firm set a price and a reserve quantity. As soon as he was soesed to his max, his quote would automatically move away from the market.. Again this is when I was in the business.

    Since then, they have come up with the supermontage which is without ECN's... I am positive that firms use ECN's to trade customer orders. We used to all the time, even when ECNs werent as dominant. If we had a large sell order, we would put our firms name on the bid to see who was selling and hit the bids after with the ECN to rermain anonymous. That is an old game though, as most of NASDAQ is thorugh ECNs...
    My guess is many large blocks that go off on the tape are arranged crosses b/w salestraders and their customers, not EVN activity...

    the only disadvantage to using ECN vs your firms name is cost...
    Using your firms name to represent a large buying/selling interest was also helpful in getting a contra side of the trade.....
  8. there is no distance. the B/A is good only for as long as they post it. and unlike that kraut burkhalter down at the league office, they can't fucking un-post it. (big lebowski reference)

    if you hit it, they must trade it, but as long as no one hits it, they can move it around as much as they like...and if someone hits it, then it's gone. they can also yank whatever anyone didn't it if someone takes part of their offer.
  9. thanks for the great info, and this statement above is something i've always wondered - what is the incentive for a MM to trade thru their MMID? are they not eligible for ECN Liquidity rebates? i'd think if i were a MM trading, i wouldn't want to advertise what i'm doing, and if i could be safely anonymous and trade thru an ECN while getting a liquidity rebate, there'd be no reason to trade anywhere other than an ECN...

    so are MM's eligible for ECN rebates?

    thanks in advance,
  10. That's why NASDAQ is pooping in its pants over lost biz.
    #10     Oct 16, 2003