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FADIV
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Surepoint Capital Management LLC 25 Years Trading experience:equities, futures, optons, foriegn currencies
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  • Market Structure / Reg NMS 2 comments
    Aug 6, 2012 4:41 PM

    So we have gone from a central market place where institutions have provided liquidity to the equity market which lasted hundreds of years to 60 ECNs where the liquidity providers are High Frequency Traders, that trade ahead of the public because their computers receive looks at orders a fraction of a second before the public. They are gaming the system. There is no fair playing field and no depth to markets. We have gone from trading in eighths to nickels to sub pennies. We have gone from 16 to 20 to 100 price points per dollar. The Specialist System was scrutinized and crushed for the sake of faster more liquid markets. Computerized trading was inevitable. Unfortunately, the baby was thrown out with the bath water. The Specialist provided a degree of liquidity, but their real value added was to provide information to institutions both sell side and buy side. These institutions provided the real liquidity. With pennies , the incentive to make markets went to zero. Commissions went to zero. And market structure has become completely broken. Banks and institutions began to trade illiquid derivatives in order to uphold their balance sheets. 2008 showed us how that worked out. Now Banks , Brokers , and institutions are being Volckerized . They are not permitted to nor is there an incentive to make markets in equities.

    What to do?

    Create 20 price points instead of over a hundred, bring risk back into the formula of trading.

    Allow institutions like JPM , Merrill, Morgan Stanley, ect to become market makers

    Their balance sheets are huge

    It will create thousands of jobs

    Make all the Exchanges and ECNs compete on an even playing field

    Upgrade technology to match that of High Frequency Traders

    If a High frequency trader had to risk a nickel to make a nickel , they would all go away.

    The tail is wagging the dog

    Do this on a trial period and watch what happens

    Market participation will explode and the public will eventually regain confidence in the market.

    Technology upgrades will enable firms like Knight trading to stop a program gone awry.

    The Specialist system is gone for ever. They provided information We need a platform for institutions to provide that information in their place electronically.

    We need transparency. A qoute of 23.01x23.02 1x1 does not show any transparency

    We need this now before its too late.

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  • User 7676981
    , contributor
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    As the former Wyeth Specialist I miss those days and think our system was better. I am at a hedge fund now and can't even bid a guy for stock even when he has 5 times more than me for sale. No one wants to trade anymore. As a Specialist I would buy 200k shares on one trade. To bad it went away. Great article.
    7 Feb 2013, 01:10 AM Reply Like
  • FADIV
    , contributor
    Comments (2) | Send Message
     
    Author’s reply » Thanks. Rumor Chinese Firm putting 500 million into NYSE Market Making Firm . We will never go back but think 5 cent spreads are in the future
    8 Feb 2013, 05:15 AM Reply Like
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