NASDAQ a big 'rip-off',ain't it??? Daylight robbery even.
Paul:
Great article,thanks. Man, these guys are bunch of thieves but the amusing part is that this is all done in day light.I wonder what the heck is the SEC for??? I won't be surprised if they are in it too!! I heard about the study conducted by the professors from Ohio and Iowa and I am surprised to see nobody has done anything about it yet.
No wonder I hate these bastards.<<gg>>
Here are some excerpts for those who might not have read it yet.
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How do we know this? By comparing how many investor orders are matched or "crossed" on average on NYSE and Amex stocks with the "crosses" that take place on Nasdaq. The numbers are revealing. On the NYSE and Amex, investor orders are matched in 91.4% and 89% of trades, respectively. Nasdaq's spokesman says the number of investor crosses in its market is 1.7%.
Thus, in 98.3% of Nasdaq trades, a marketmaker inserts himself between buyer and seller. He isn't there for his health; he's there to bite off 1/8 of a point or more. Those fractions can mount up when you are moving nearly 2 billion shares a week. According to Abel/Noser, average Nasdaq spreads are roughly double those on the NYSE--38 cents versus 19. This was confirmed by a March 1996 draft study on trading costs and exchange listing by Paul Schultz, a professor at Ohio State University, and Mir Zaman, a professor at the niversity of Northern Iowa. The academics found that on small trades, effective spreads usually increase by more than 100% when a stock moves from a listed market to Nasdaq.
Who are the marketmakers? They include big retail investor firms like Merrill Lynch, Smith Barney and Charles Schwab's Mayer & Schweitzer, giant trading houses like Goldman, Sachs and Salomon Brothers, so-called wholesale firms like Herzog, Troster Singer and Sherwood Securities and hundreds of smaller firms like Ryan, Beck & Co. and Key West. In fact, much of the volume that looks so impressive on Nasdaq is not investor meeting investor but marketmaker meeting investor or marketmaker meeting marketmaker. Actually moving a share from one investor to another may involve not a single trade but several: seller to marketmaker; marketmaker to buyer. John Gould and Allan Kleidon in the Stanford Journal of Law, Business & Finance in 1994 analyzed this method of counting volume and concluded that roughly 41% of Nasdaq volume is investor-generated. The rest--59%--is marketmakers trading among themselves, known as "the churn."
Double- and triple-counting volume achieves a couple of things. It creates the illusion of liquidity in a stock. It also explains why a single day's trading in a Nasdaq stock may represent a major part of its float. Not a big turnover in ownership but simply trading the same shares several times in the day may have accounted for the bulk of the action. |
