This article, like a lot coming from that journalist, is more mixed up than a dog's breakfast.
There are some valid concerns raised. But a lot of it is just plain absurd BS. The defense of MM is galling. If it weren't for the horrendous abuses of MMs - illegal activities they engaged in for years, activities which persisted no matter what the SEC did - there wouldn't be a need for ECNs in the first place. The kind of theft, in the billions of dollars, that MMs have engaged in, is simply a feature of the way the system is built. It's not something you can eradicate with rules revisions - you needed to change the system, and that's where the ECNs have come in.
A lot of the problems you are seeing with ECNs are "early growth" problems. I think inevitably there will be some consolidation around a select group of ECNs, and that should alleviate some of the problems. I suppose INCA and ISLD will survive. I don't know about TNTO - despite the GSCO cash infusion. But to go from saying that there are problems with ECNs to extolling MMs or the old system is absurd.
As to the "good" prices you get from MMs - that's a laugh. I've had too many experiences with MMs taking advantage of traders in ways that border on the criminal - sitting on orders for whatever 30 seconds - or longer - and then filling it depending on how the market moves, without letting you cancel them. I've complained, but it's hardly worth the aggravation, even when what they do is clearly illegal. I'll take the "mechanical" ECNs any day. Anyone who has traded on ISLD would never again want to go back to the days where all you could do is Snet MMs.
In fact I'd go a step further - I see no reason for MMs to exist, other than maybe making a market in some issues that have no volume on ECNs. That would of course turn them into as lovely a place as BB "market place". No thanks.
As to online brokers "front running" orders - how is that the fault of ECNs? You don't think your order can be front run by brokers at ML? Or for that matter aren't routinely "front run" by MMs every day? Which is worse? At least with the broker you can try to crack down - with the MMs, it's built into the very system.
Sure there are problems with ECNs - fragmentation being one of them (and BTW, many problems are caused by MMs who try to control the game by destroying the trades on ECNs by "nukeing" a block of shares at the inside quote - they Snet for a handful of shares, and send you into partials hell). The solution is to improve them, not go back to a system where everything is controlled by the thieving MMs - we've been there, and it doesn't work. |
