Posted on 11/07/2004 7:14:19 PM PST by WoofDog123
SEC IS SAID TO EXAMINE STOCK PRICING BY BIG BROKERS /// Securities and Exchange Commission is investigating dozen brokerage firms -- including Morgan Stanley, Merrill Lynch, Ameritrade, Charles Schwab and E Trade Financial -- on suspicion they failed to secure best available price for stocks for customers... Developing...
The advent of the ECN's as separate exchanges, order routing based on rebating or execution fees, and some Payment for order flow arrangements with some predatory OTC Market makers are what comes to mind.
In the future I don't see, if this is regarding NMS stocks, how brokerages are going to avoid going to supermontage or something similar (booke-sweep with whatever ecn or a market-maker who provides something similar for a fee, i.e. NITE) to meet the best-execution obligation. I know some firms (TDCM, BAMM, GVRC) have and are pushing their nasdaq stock trading arms, but where is the impetus to route to them if the customer can just be done giving the order to a book-sweeping ecn, SUMO or NITE (the gorilla of the NMS market makers, followed I assume by SCHB.MASH), both of whom are going to charge? Fee avoidance is the only reason I see.
I really don't see where the role for traditional market makers in NMS/Nas small cap stocks is now for retail, or for that matter with institutional. Aside from NITE, the other firms are so small in order flow that if they won't go take the market (fees and all) you really cannot get more exposure than with an ecn, reserve-priced or hidden or however it needs to be worked. I guess this is part of why so many firms are forming OTCBB/Pink sheet trading divisions.
This is the reason Grasso was paid so much money. He protected these people. This is why the Grasso deal is so big. It means the end of the specialist system at the NYSE.
John
i have been wondering why i always seem to get the worst prices available when i buy a stock and i havent been able to figure it out on my own. since i dont make many trades i forgot about it but id like to know.
oh and when i saw this news on drudge the thought of whether or not this will have a negative effect on my portfolio did come to mind. i hope not.
I have asked many people and no one seems to know. Who actually sets a price for a stock? I understand market ups and downs but, if a stock sells only a small number on a given day, why would the price change? In other words, if a company that has millions of shares of stock and only a couple of hundred of those are sold, would the price change? And why would it since it seems to have no real bearing on the value of company overall?
"It means the end of the specialist system at the NYSE. "
Yeah, when he retired and cnbc started talking about the spec. system, a few spec. being sanctioned for front-running, etc., I figured the writing was on the wall. His 9-digit package has not helped any.
For years up until the late 90's the complaints were about naz mm's, but the nyse (and amex even worse) specialists were running a far bigger scam. Anyone without floor access has NO edge against the specialist tremendous control over short-term stock movement.
How many times have you had him print a block where you least expect it and then move his quote even further against you?
"In other words, if a company that has millions of shares of stock and only a couple of hundred of those are sold, would the price change? And why would it since it seems to have no real bearing on the value of company overall?"
Stocks go up and down, often without apparent regard to company fundamentals based on publicly available information. The inside market of a very thin stock can vary simply based on the prices entered by traders with orders to work before the market opens, or the vagarities of pegged orders, which follow the inside market around, etc. Small moves on low volume are usually not a big deal in signifigance.
Stocks that are thinly traded often have very thin market depth (meaning numbers of shares that can be sold at the current market), meaning even a sale or buy of say 1000 shares can move the price some. While there are many reasons a thin stock moves, all it takes is one customer with a large order to move one of these stocks around quite a bit without any regard to any company developments.
The above is not investment advise and is in no way to be considered a substitute for professional advice from your own financial planner or broker. Internet commentary should never be the sole basis of any investment decision.
Thanks for the reply. Still, who actually sets the price for a stock at any given sale/moment in time?
Think of it this way. I have a hundred shares of Home Depot, or maybe I don't. I am a market maker. Thus I will give you both sides of the market. I will pay you $99 per share for a hundred shares or I will sell them to you for $100 per share. You have a market either way. I'm 99-100 for a hundred Home Depot. You, as an investor, trader or whatever you are can a)hit my bid, or b)lift my offer. I make money on the spread between bid and ask. You have a liquid market where you can buy or sell HD.
So let's say the market for HD collapses. There are no bidders all of a sudden. What happens to the price? The $99 bid suddenly disappears. Somebody out there has a bid at some price, it may be $70. If I am long the stock and I hit the bid we now have a new range for HD stock.
Same thing is true if the stock soars. Suddenly no one is willing to sell at 100, now it's 110.
Does this help? No one actually sets the price of stocks, it is what the market, and liquidity, will bear.
"Same thing is true if the stock soars. Suddenly no one is willing to sell at 100, now it's 110. "
I wish I actually knew traders or specialists on the NYSE floor, but I have seen SO many times at the top of a move the spec. post a 50k bid or whatever and minimal ask, scaring in buyers and before you know it a huge blok prints and the thing is offered down in size. I have been burned enough in the past with this lack of transparency on NYSE order flow that I simply will not daytrade NYSE unless it is a situation with a lot of ecn participation i.e. S on friday or an IPO.
With all due respect, you're using a microscope to view a panorama. Day trading is not the way to make money in the markets. Latching on to long term trends is. I have been in this business for almost thirty years and the only successful traders are trend followers. They wouldn't day trade with a gun to their heads.
check this out:
http://www.originalturtles.org/
They are thieves. In some ways, more immoral then the Tobacco companies.
John
Hi, thanks for your reply.
My comment was meant to illustrate issues in the NYSE specialist system with order-flow transparency. I think to some degree it is institutional...my primary experience in in the NMS/OTCBB markets, where daytrading/short-term trading has provided me very well over the last 10 years (granted, 2 or 3 of those were give-me's)....
I freely grant that there are MANY very successful trend traders, and furthermore that trend trading allows a much greater deployment of capital than shorter-term trading. Once again, it is what your brain sees and does well versus perceives well that seems to matter.
Tobacco companies sell a legal product that has been in use for thousands of years. Wall Street sells a new pig in a poke every twenty years or so and slaughters retirement plans in the process. How can you possibly compare the two?
I toast your success. I agree that Wall Street is a crooked, rigged game. I worked there for many years and I can tell you that money rules and morals be damned. The warped minds there THINK they are doing good. In some ways they are by providing capital to those who need it. But not without extracting their pound of flesh.
"I worked there for many years and I can tell you that money rules and morals be damned. The warped minds there THINK they are doing good. In some ways they are by providing capital to those who need it. But not without extracting their pound of flesh."
It seems no matter what the SEC or NASD tries to do to prevent a particular type of abuse (i.e. the manning LOP rule, display rules, ECN display, etc. that pretty much destroyed the NAZ MM system), there is anoter way to play the game for someone in any given market. There are a number of games played now in lower-volume Nas stocks, though I do think program trading and arbitrage have really gotten the ndx stocks much more contained than they were in the past. I think the NYSE has had a free ride for a LONG time, and as the pendulum swings back we could see a lot of changes in how that institution works.
Free-thinking comments -
Decimalization on the nasdaq market killed a part of my livelihood when it was brought in, and I am still not convinced quotation in pennies has actually provided any material benefit to investors. Of course, I am biased and how do you even measure this? But from a depth viewing and ACT-clearing viewpoint, it seems much simpler to see 3k shares available at .0625 rather than see 100 at .02, 900 at .03, 1200 at .05, 700 at .08, 500 at .09, etc.
The advent of ECN liquidity surpassing anything available from any 2 wholesalers caught me off guard (for reasons of both complacency and due to my clearing arrangement), I was slow to react and certainly missed some amazing opportunities as a result.
I wonder where the new liquidity trend in exchange-listed stocks will be? Can NYSE introduce an electronic sub-market to keep the order flow from migrating? Trimark already does a good chunk of business (charging most customers .003/sh), but they have many of the same problems I could complain about old-style nas mm's. How do you compete with .002 take/.001 rebate on an ECN, once the depth is there?
I was told by my broker that the specialists on the floor can see your stop-loss orders. I believe I've been burned by the price being moved down with the intent of triggering stop-loss sales then the floor traders move the price right back up. I never, never, never put in stop-loss orders anymore.
it is called 'stop-running'
I would think anyone with the book TO DO IT does do it. It is fairly low-risk money.
The buyer in all cases.
Many transactions are done electronically. People post bids or asks on one of the computer systems. If a bid comes in higher than an ask, a transaction takes place (or is supposed to.)
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