What needs to happen is to ban firms from trading in stocks that they make a market in.
That's never going to happen, and it shouldn't. Dealing involves - in fact implies - a combination of not only proprietary and agency trading, but also sometimes buying low & selling high/shorting in the traditional manner, and other times selling into upticks, buying into downticks. It's all part of the process of making the market, and that ain't going away.
To restrict firms from doing one or the other would be to hinder their application of capital, which is not in the interest of any market participant - retail or institutional customer, dealer, or ECN.
There was a proposal some years back, where the ratio of dealing firms buying downticks/selling upticks was to be electronically monitored with relation to their buying low & selling high, and at some point a MM would be designated as a "primary" or "secondary" market maker. A primary (which would be indicated by lots more of the buying on the way down, selling into upticks) would have some privileges, and a secondary (which really acted like a proprietary trading firm) would have less. It's not too bad of an idea, IMHO.
But, I haven't heard anything about this proposal and assume that it has fallen off the table. The fact is, even this proposal didn't address naked shorting, which is - as I have stated earlier - simply a nonevent with regard to its' impact on a stock.
LPS5 |
