Hey Dom,
No, I unfortunately missed Tony's talk last night. That'll be the last one I miss, though.
First, it's true that (a) smaller increments lead to smaller quoted and executed sizes on average, and that (b) increased volatility often results.
With regard to the quote $1-$65, I'd bet - not having seen this issue, of course, so I could be wrong - that the inside market was in the thirties or forties or so...and that, in quoting a buck to sixty-five, the dealer was expressing (graphically) his desire to not trade at that moment. I see no harm in that...nor do I in dealers trading through ECNs. In fact, if the anonymity afforded by ECNs makes them more willing to trade, all the better for everyone.
As for the lowered capital requirements to move a stock one point, the fact is true but not totally indicative of the situation at hand. In fact, there are several (or many) dealers competing, and there will be selling as well as buying on the way up (whether by some dealer or retail/institutional interests via ECNs), and probably one or two jinx along the way, so: $3200 as the dollar amount to move an issue one point is academically correct, but not indicative of the typical trading dynamic when an issue starts to run with mutiple dealers and ECNs on both sides.
But, overall, yes. Volatility is higher as a result of the smaller ticks. No doubt about it.
LPS5 |
