DAN...
For the record, I apologized to Dan for not completely reading his original post and jumping to some conclusions. We have cleared the air between us.
However, I disagree with some of the assumptions that you made in your post regarding:
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None of you are obligated, when seeing a stock fall x% in y time for no apparent reason, and with no onslaught of sellers to say "Hey, we have an obligation to maintain some order here, so I'm going to do it" instead of saying "When somebody else decides it is in their best interest to buy, only then will I'll compete with him for a piece of the action. Till then I'll buy a token 100 shares here and there every 17 seconds (or in an unspecified "reasonable time" for SelectNet) on the way down."
*AND*
What you seem to be telling us is that MMs step in when it suits their purposes for making a profit and not before. That's precisely my hypothesis. And the events I described are a natural consequence of action, or lack of action, motivated by profits without regard to any obligation to maintain order.
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And your suggestion for ALL of the markets would be? While I will agree that the larger stocks in the NASDAQ maintain order 'by themselves' due to their extreme popularity and liquidity. However, you can't have it both ways. If you went to a unified ECN setting (which is what you suggest when you question why have MM's in the first place), what do you do with thinner stocks? Do you actually think the situation for these stocks would IMPROVE? We can debate this all day but anyone here who has seen some of these stocks trade in after-hours on news knows just how dangerous they can be.
MM's, while they have their own trading interests to think of, ALSO are obligated to their customers. You make it sound as if no MM is printing stock during a panic run up or down. Did you know that Charles Schwab and Knight Securities have AUTOMATIC printing systems designed to give their MARKET ORDER customers the current bid/offer (up to a size limit) on their order flow? I know people at both firms who have gotten absolutely DESTROYED making markets by standing in there and getting 'automatic'ed until their ears bleed! If Schwab and Knight do it, can you imagine what Morgan Stanley and Goldman Sachs have to do?
No, MM's aren't just sitting there, watching the panic and saying, "No, no, no, not here, no, no....hmmmm.... well, Yes this would be a good spot." At the same time that the wholesalers are getting creamed on their automatic systems, the momentum players are trying to get filled on their orders (the direct access traders) as well as other MM's. IMHO, the system works just fine. It sounds like you expect MM's to sit there and absorb the public's losses. MM's are not specialists... they don't have the whole book to themselves. Most of the larger MM's must compete with the current market for their customers and are obligated to doing the best that they can for them.
Regarding a largely capitalized stock moving 10% in 10 minutes on what you consider 'light volume'... I can guess that the float is thin and the stock is known to be extremely volatile. The more volatile the stock is (we can use the implied volatility measure that options traders use), the MORE drift you are going to get when the volume is light. You already know my thoughts on collusive activities and how they are simply a scapegoat when things don't go well (I am not implying YOU are using them as a scapegoat, just that they are an 'excuse').
I look forward to your reply, and your explanation of what you think would work better for ALL stocks, not just the liquid ones.
All the best,
-- Gene
P.S.: Dan, I respect your views and I am enjoying the give and take here. Anyone else feel free to add your thoughts... Damn it... Where is LPS5 when I need him! |
