John,
For those that missed the part about the action that Knight takes against its good customers, here it is again...
But Knight takes steps to limit its risk. For example, it chooses whom to trade with. Mr. Pasternak welcomes the "uninformed" orders of thousands of individual investors, because he is confident that, on average, Knight will be smarter than them. And just as a casino bars gamblers who consistently beat the house, Knight's systems watch for investors who consistently make money trading against the firm. For such a customer, Knight may restrict or suspend the promise to automatically execute all trades at the best price posted anywhere.
Knight also occasionally suspends this promise during "fast markets." Suppose a mention on CNBC triggers a surge of buying or selling in a stock; Knight can suspend automatic execution after it has accumulated a long or short position of, say, 25,000 shares. Then it switches to manual execution and fills orders only against another customer or another dealer -- a slow process during which the stock may move a lot.
In the last year, we've seen massive finger-pointing and media hype about the nasty retail daytraders. Assuming the allegations are true, these clowns at Knight have probably ripped off more money from customers in the last month than all of the supposed retail daytrading schemes combined. Sounds like an SEC investigation is in order.
Good post, John.
Thanks and regards,
Dan. |
