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Non-Tech : The Island ECN

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To: Dan Duchardt who wrote (56)	12/22/1997 6:34:00 PM
From: The Vet	Read Replies (1) of 202

Dan, you made the error of assuming that the MM are all fair and above board. In fact what happens is that as soon as the MM realises that you are bidding above him through Island, he just sits there and matches your price until either you get a fill from another Island customer wanting to sell or alternatively you get fed up and raise your bid to his ask, and make the MM a handsome profit. Sometimes they even trade shares UNDER your bid (I have had this happen to me) but I suspect that any customer who was watching the quotes is likely to get upset about this and complain, so they only do it if they think they won't get caught. All you achieve with your bid on Island is to slightly reduce the MM's spread and his profit. If your order is small the MM may just fill it to get rid of it and then reset his spread top his liking, but just to get even he will not fill all of your bid and leave you with an odd lot under 100 shares sitting on Island (which won't be represented any more) and you also end up holdingh an odd lot which is likely hard to sell later. I still like Island in that it may not keep the MM's completely honest but it does let us see what they get up to!

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