No problem at all, WS.
Sounds to me like the MMs for the biggest brokerage houses have the advantage in gauging buy/sell pressure, since they would also tend to have the most retail and institutional order flow.
It's a curious thing really, because that's partially the case, and partially not. A large wirehouse would typically have a prime brokerage department, which would handle hedge funds' trades, and would have a block trading desk, that would handle buyside trades, but few have retail operations, which leaves out a big part of the order flow picture. In addition, because firms of this sort handle research, and do syndication business (underwriting), even if they see certain order flow patterns, regulatory stipulations such as Reg M can restrict their "mobility," by which I mean their ability to act upon such information.
On the other hand, wholesalers - who only execute trades for retail and institutional clients on both an agency and dealing basis, and do not underwrite issues, issue research reports, etc. - are the real "harvesters" of, and users of, order flow information. And, because of their quasi-market center position, they tend to have the best information in terms of representation and volume.
what does "UTP" stand for
Listed stocks can trade on an over-the-counter basis, which means, between dealing firms without touching the floor of an exchange; this is known as the third market. Similarly, Nasdaq stocks can trade on an exchange via a mechanism known as UTP, or "unlisted trading privileges."
Essentially this involves the trading of a Nasdaq issue by regional exchange specialists posting bids and offers in the Nasdaq montage. The only regional exchange actively involved in UTP trading these days is the Chicago Stock Exchange (still operating under the frustratingly antiquated acronym "MWSE," for back when it was the Midwest Stock Exchange), although I have heard that the Phillie Exchange is now looking to get into UTP trading as well. Some of the specialists represented in the MWSE book are Melvin, Rock Island, Chicago Securities, et al.
How exactly do MM's go about opening a stock at a particular point? Obviously they don't just pick a number out of thin air, so I suppose there must be some kind of method to their madness.
I'm inclined to describe the process as a combination of convention, follow-the-leader, and lifting a spit-wetted finger to the wind. Much of how much play is involved in where a stock opens has to do with the stock itself (liquidity characteristics), the order flow on the books of larger dealers, and the price movement of whatever dealer or dealers are, or are perceived to be, the axes in the issue in question.
I'm sure there's a bit of randomness in there too. The regulators are looking to improve the science behind the opening process on Nasdaq via integration of auctions calls such as offered by the Arizona Stock Exchange, an alternative trading system growing in popularity recently.
LPS5 |
