Here, in response to this, which has Wall Street abuzz today.
An excerpt from “Bovine Scatology”:
Ten years ago, your mutual fund manager would have to use Goldman or a competitor’s block desk to move 100,000 shares of Proctor and Gamble. And they would have to trade an eighth wide, i.e. 12.5 cents per share. The financial intermediaries would take that spread, or more, if another customer was willing to trade through your manager’s limit to take the other side of the trade.
No one pays those types of commissions any more. Tick sizes have shrunk over 90%, and as have costs to the retail investor.
The fact that Duhigg had to quote a dinosaur, Bill Donaldson, tells you something. I’ve spoken to the founder of DLJ and SEC chair on one of his lecture circuit gigs, and the guy is from a different age. His research driven business model was fantastic back in the 70s and 80s, but its a woolly mammoth now. His appointments since cashing out have been largely political; those who can’t do teach, and those who can’t teach must regulate …
There are a lot of grizzled Wall Street veterans who pine for the days of tick sizes an eighth wide, and funneling trades to a single market maker on a trading floor. That’s because a monopoly is great if you are on the right side of it.
Price discovery is improved with liquidity. There is more liquidity because of high frequency trading.
Right now, GE is quoting $11.97 x $11.98, half a million shares a side. I guess Donaldson and Duhigg are pining for the days when it would be quoting $11.875 x $12.000, and we retail investors would be paying Merrill $300 to sell 1,000 shares, in addition to giving up $95 extra in the day of eighths, in that we would be selling at $11.875 rather than $11.97.
As usual, the good ol’ days aren’t as good as they seem, once you realize you are giving up your clean running water for the outhouse.
Caveat Bettor = Bombastic Blogger
caveat,
you don’t seem too bright, but do you have to display it in a public place?
http://news.yahoo.com/s/nm/20090725/pl_nm/us_schumer_flashes
I’m a bit edgy today.
Medemi, of course I’m not very bright! But my business has recently started looking at these flash orders from a certain liquidity source in the last few weeks, and so far we are not seeing very consistent or actionable flash orders. I’ve seen some of the journalists talk about them, but figured I could provide some perspective of an industry practitioner.
Since you’re so far ahead, you should be able to beat me to the punch. I don’t think I’ll have anything for at least a week, perhaps more than a month, so that should be plenty of time to demonstrate that you are not as dumb as me.
There really isn’t much to talk about – it’s in the link I provided.
“Schumer’s letter — which named Direct Edge, Nasdaq and BATS — said the flashes allow exchange members to use “rapid trading programs to trade ahead of those orders and profit from advanced knowledge of buying and selling activity.”
If not illegal, it’s bordering on illegal activity. Nothing you say, none of your irrelevancies, make it right. It makes you look like a mug.
Medemi, I found another person brighter than me (of course, not a difficult accomplishment). However, it may turn out that Eric Falkenstien may be brighter than you, too:
http://falkenblog.blogspot.com/2009/07/computer-trading-is-good-competition.html
I know it is simple to trust the journalists. But if you ever read something written by journalists about something that you where you have expertise, you will see that error rates are pretty high. Like I said before, its appropriate to get the view of the practitioners–not just the reporters who might tickle your fancy.
>> I know it is simple to trust the journalists.
Who said I trusted the journalists’ opinion? I’m just not interested in sharing my expertise with you, or anyone else.
Information Technology is my hobby and profession. I’ve designed my own trading strategies, written my own trading applications. Nobody tells me what a 30ms edge against the rest of the world means, expressed in $.
Front running, btw, is illegal. Many brokers have been severely punished for it in the past, in the US. The fact that it is “only” 30ms doesn’t make it right, it makes it a lot more dangerous… Evidently, most people are unable to see why, or how they can be hurt by this. That ’s ok, you don’t have to be in the know. Doing the right thing here doesn’t require specific or extensive knowledge though.