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Non-Tech : Knight/Trimark Group, Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Mike Yiu who wrote (6324)	12/6/1999 8:12:00 PM
From: Gary Korn	Respond to of 10027

Gary, what do you think of Motley Fools article on the decimal point spread instead of fraction? They believe that initially it will be negative for Market Makers like NITE, since they spread will not 1/16 but rather 1 penny. Mike, Not a concern. 1. The Fool article itself states that decimalization may spur intense trading: Many experts predict a surge in trading as the cost of trading drops. One consulting group expects the rise attributable to decimalization to exceed 80% as the number of pricing points increase from 16 to 100 per dollar. This could cause a capacity problem for the stock markets, which are currently upgrading their systems to handle the expected rush. 2. As KP noted in the 3Q CC, the trading increase will largely offset the spread decrease. The Fool article states the same thing: The expected drop in unit profits for market makers should at least partially be made up in an expected increase of volume. As long as their networks are capable of handling the increased order flow, they will likely be OK 3. Stocks with penny spreads will be the most liquid stocks, where NITE makes little anyway (and where ECNs can do business, much of it sent to them by NITE itself). Indeed, the narrowed spread would have little impact on illiquid stocks. As the Fool article states: However, as is the case today, what would likely end up happening is that those companies with lower trade volumes would retain higher spread intervals for the dealers who handle those securities. 4. Narrower spreads from decimalization will drive less efficient market makers out of the business. Who do you think will benefit? NITE. 5. With decimalization will come, in my opinion, the decline and end of payment for order flow. In sum, decimalization may have a slight negative effect at first (as noted by KP in the 3Q CC), but will bring its own set of positives: greater market share, a reassessment of payment for order flow. In the end, it will actually help NITE prosper. Gary Korn