Also, I am not sure I understand how they could do away with narrow spreads even if they wanted to... they can't forbid ECNs to use penny increments, can they? If they can't, this all becomes just mute point...
The difference, I think, is as follows. Let's assume that Nasdaq quotes in nickels, and that ECN's are quoting CSCO at 14.232 bid and 14.238 offered... The Nasdaq quote, meanwhile, will be at 14.20 bid and 14.25 offered. This allows market makers to fill sell orders at 14.20 and fill buy orders at 14.25, thus making their easy profit off of their order flow.
For traders, we will still need to execute our orders on the ECN's at penny and sub-penny increments on these super-liquid stocks. But, for the market makers, they will be able to make an extra penny or two on their average order and return to stable profitability.
Personally, I'm not sure whether this is a good thing for traders or not. In any case, it would be a windfall for those executing orders for discount brokerage firms (non-direct access).
-Eric |
