E*Trade selling order flow/loosing market share
I think there exists the potential for E*Trade to loose significant market share of the online trading business when it becomes widely known that E*Trade sells their order flow to the Knight/Trimark Group Inc, headed by Ken Pasternak. Knight/
Trimark is the largest market maker on the NASDAQ. E*Trade sells their order flow for 2 reasons: First, they get paid for the order flow by Knight/Trimark, and second, they have an interest to do so because they are a substantial shareholder in the Knight/Trimark Group. There are other online brokers who also sell order flow like E*Trade, but there are numerous online brokers who do not!!
How does this effect the execution time of an order that an E*Trade customer may have working? Well, there may be a better opportunity to get your order filled on an alternative electronic exchange (Instinet, Island, etc.), but because of the relationship with Knight/Trimark, where do you think your order is going to end up?? When Knight/Trimark goes to its manual execution instead of its auto-execute system, the delays can be substantial.
Bloomberg did a recent piece on this manual execution delay, the first part I pasted below:
Market Makers' Manual Executions Spark Online Delays
Bloomerg Online
Jan/14,1999
Jersey City, New Jersey, Jan. 14 (Bloomberg) -- Large market
makers are causing delays for investors trying to make online
trades because they periodically remove certain Internet stocks
from automatic execution systems, industry executives said.
Knight/Trimark Group Inc., the biggest market maker on the
Nasdaq Stock Market, yesterday removed about a dozen Internet
stocks, including Yahoo Inc. and Amazon.com Inc., from its
computerized execution system several times for about 15 minutes,
said Ken Pasternak, president and chief executive. Trades were
executed manually, taking three to four minutes instead of a few
seconds.*************** |
