Dear Howard,
WOW!!! You just asked questions of a 'general practioner' that need to go to a specialist like Anthony. While working, I knew next to nothing about the machinations of MMs...am trying to learn it now from this thread. The small office I worked in didn't even have Level II capabilities until after I left in 1997, in fact just got it last summer. Finding out exactly what my broker-friends do, if anything, with these capabilities is on my list of theings to do this week.
My guess is that the typical retail broker, such as I was, would not personally shop an order such as you described, but would simply enter a market order and leave it to the trading desk at Merrill to locate the best price. I say that because Merrill is trying to defend its full commission structure by claiming superior order execution. For ex. if I had placed a market order for OMGA thru Merrill, my confirmation might read "ML/NYSE PRIME PRICE IMPVMNT ON THIS TRADE SAVED YOU....followed by a dollaar amt. Sometimes these s savings are substantial, usually they just reduce the commission by 10 to 20 percent. At any rate, the idea behind all this, is that Merrill's trading desk will direct your order to the best MM at the moment.
Where I'm confused is with the following example. Last fall I shorted Schering Plough. I got a confirmation saying I'd received a price improvement. Since I know Merrill makes a market in the stock, I remember wondering why I would get a better price from one ML market maker vs. another because I thought they were all employees of the firm??? At any raate, I'll going to start learning more about the structure of all of this in the near future. The problem will be that I suspect my own broker and former co-workers won't really know anymore than I do. Not to necessarily disparage any of us.....we just never felt a need to know....and our focus was on long term investing where small price differentials didn't matter.
Don't know if I've added anything to your understanding....suspect you're way ahead of me. I do have a questions for you, though, to answer if you can, at your convenience. I thought the type of collusion you so carefully observed and described in your posts was either done away with or made more difficult by recent legal changes re. market making?????
Highest regards to you,
Daisy |
