Redmond:
I have been watching L2 on & off for several months now in stocks such as CSCO, DELL, JDSU and have yet to see any blocks approaching the size of the blocks I frequently see in Time & Sales of 50,000 and 100,000.
For example, today, in the last 35 minutes of pre 400pm trading (EST) in JDSU there were 3 blocks of 100,000 and one of 125,200 but I'd be surprised if these showed up in L2. Should they be appearing there?
Am I missing something here?
No, you are not missing anything. You will virtually never see a bid or offer on Level II for 50k or 100k shares. Let's consider for a moment why this will almost never happen. Assume that you are a market maker and a big institutional customer of yours has placed an order with you to buy 100k shares. Your job is to purchase the 100k shares before the end of the day at the best possible price.
One option to buy the shares would be to immediately place a bid at the inside market for 100k shares, displaying to the world your intentions. What would happen if you were to do this? Of course, the stock would likely immediately begin to rise. Other market players would see your big buy order and immediately assume that the stock must move higher on this heavy buying. => Unfortunately, you would end up having to chase the stock much higher, and subsequently pay a much higher price to fill your customer order.
Instead, the wise market maker will post a 100 share order on the inside bid and wait for buyers to come his way. Note that he/she is now buying for their own account, with the intention of later transferring their shares to their customers account. SOES and SNET orders totaling 5k or 10k shares may come in and he/she will accept and fill every one of them. Perhaps the overall market will become a bit weaker and the wise market maker will drop his/her bid by 1-2 points, presumably indicating that their buying is over. However, the market maker may simultaneously place orders on Instinet (INCA), Island (ISLD) or another ECN to disguise his continued buying. Finally, after several hours, the market maker will accumulate the 100k shares in his own account, and will then transfer these shares, as a block, out of his/her account and into the account of their customer. This is the block trade that you normally will see. Typically the block will print after the order is already filled one small piece at a time over several hours time.
Good luck,
-Eric |
