Man that story is full of holes. A few glaring ones.
The article talks about investors, and then gives an example of losing a 1/16th while trading on an ECN. What kind of investor gives a crap about a 1/16th. A trader would probably be happy to give up a 1/16th if it meant a speedy execution, which ecn's do.
The article alludes to the fact that it costs more for the poor helpless mm's to trade on ecn's. It fails to mention that this hugely prohibitive fee is less than a penny a share, and some ecn's actually pay you if your adding liquidity to the system.
The article talks about the volume on the ecn's being 20% of the market. Biggest ecn is instinet and that is almost exclusively big boys, no mom and pop there. Even the island and redi type ECN's of the world have a large part of their volume made up of market makers using them to try to hide what they're doing.
It talks about investor who trade on ECN's. What "investor" does this? No one. Investors go through a broker, online or otherwise. All the online brokerages except Datek go through MM's. They sell the order flow so your in the hole from the start, plus the MM's positively screw anyone that's trying to get in or out of a fast moving stock through them.
The article says that on a market crash the ecn's won't support the market, and the good ol market makers, God bless them, would if only they had the trades to do it with, but with the ECN's taking all the trades(and thus commisions) from them they won't be able to. BS. Watch an ipo come live some time. When the insiders start dumping them cheap shares you'll see Goldman Sax and the other big boys on the ask, and you'll see little guys through ECN's on the bid. Anytime a stock plummets it's the ecn's that are back in buying first, then when they get the slide slowed if not stopped, you see the mm's test the water. When the plummet is happening mm's don't do a damn thing, they either back way off the bid, or put out their 100 share size and refresh as slow as possible. That's why ECN's were allowed in the first place, because in the 87 crash, market makers didn't do their job, they just let it go into a freefall.
The dinosaurs on Wall Street are either gonna have to evolve or become extinct, the big comet(the internet) has hit the earth and there's no going back. The little guy, through the evil internet is going to have more and more access to the market at a cheap price. Basically MM services are no longer required. Stocks will be more volatile, but the prices will not be propped up or held back by artificial means. The stock will trade where it belongs, if someone tries to manipulate a stock up, someone else will manipulate it back down(us, lol). If a stock gets overshorted, someone will squeeze it. The Peter Lynch's and Warren Buffets of the world have done a wonderful job of teaching average joe 6-pack to hang on and invest longer term so they don't have to worry about all the day to day kookiness.
Mr. Burns |
