Good to see you here, sir! You are to be commended for your willingness to help people understand more about what you do and how you do it.
A couple of humble comments, if I may:
You describe Level 3 on the NASDAQ as "the ability to move markets". This might not be the best wording for it, as it could give one the impression that the MM is somehow 'manipulating' the bid and ask.
A better way to describe Level 3 might be that it allows the subscriber (a brokerage firm in most cases) to update their quotes on the security they are making a market in. An understanding of Level 2 is implied here; Level 2 allows a subscriber to view the bid and ask of every MM that is making a market in that particular security, but does not allow the subscriber to place a bid or ask on a security.
The reason the distinction is necessary is because with ECNs, an ordinary individual, trading through an ECN such as ISLD or ARCA, can take on the role of a market maker in many respects, since he or she can perform some of the functions that are available to a MM only on Level 3.
This ability, the ability for an individual using an ECN to place an order that instantly appears on Level 2 along with all the other market makers, differs from the New York Stock Exchange in that an individual day trader who places his order for a NYSE stock does not see his individual order appear on Level 2. His order appears with all the other orders at that particular price (if it is a limit order).
It is my understanding that about 80% of all the trades on the NYSE are processed through SuperDot. SuperDot stands for Super Designated Order Turnaround. It is a computerized order system. This system allows anyone (a brokerage firm) to select the way an order is routed to the NYSE and who gets the order. Some orders can go to the Specialist, and some can go to the brokerage firm's "commission broker" which is the trader for the brokerage firm and is standing on the floor of the exchange. The commission broker can do a trade with another commission broker or with the Specialist. An order that is executed by the specialist or the commission broker is confirmed in the same way; via the electronic SuperDot system. The "new" NYSE, which will open soon, has an updated version of SuperDot, obviously planned to try and keep up with the Nazz. Any day trader who trades the NYSE knows that confirmations are much slower than on the NASDAQ, this is due to the fact that the trading is being controlled by a human being, the Specialist, and he has the "final word" on what is going on. For example, I believe a Specialist can halt the stock he is working any time he wants to if he has an order imbalance, but an individual MM on the NASDAQ cannot halt a NASDAQ stock.
Now, a couple of questions:
I believe there is a rule for NASDAQ MMs regarding showing the size of an order from a customer; sometimes they show the whole order, and sometimes they don't. Can you explain what that rule is and how it is applied exactly?
Please describe a "firm quote" and how a MM revises same, and the difference between revising a firm quote and backing away from the market after you have made a firm quote (which is against the rules).
Thanks very much, and welcome to SI!
TLC |
