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To: Arthur Tang who wrote (1122)	1/31/2000 12:15:00 PM
From: Arthur Tang	Read Replies (1) \| Respond to of 1471

Theorectically, SEC wants the market makers to reduce the spread of the trades. In reality, the market is such today that the offers are made without any advanced knowledge to indicate how many shares are needed for supply and demand. Large market makers will offer 30 lots at a reasonable price. That price is echoed by smaller market makers for 1 round lot for higher or lower price depending if they are competing for the business. On larger lots either supply or demand, the firms have to call on the telephone for a real quotation. Electronic brokerages clear through a clearing house, some times have to buy 2 blocks from market makers to handle electronic supply and demand needs. Then distribution of stocks in odd or round lots is possible. The price of those shares are then quoted according to ie. Nasdaq's realtime quotes; which is the last trade offers. Electronic brokerages therefore does not always make money on their inventory. Witness the red ink everywhere. Schwab has middleware software to track many variables and they can make money. But that was just background information on trades. The spread of the realtime quotes, tells you the last trade recorded by the brokerage to Nasdaq. If the spread is large and the price is pulled back; the understanding is that market makers do not want to sell any to you, but they want to buy back some shares to cover those borrowed. If the spread is large when the stock has a nice move already; that means they want to sell more stock but they prefer not to buy back from you. If the spread is tight, then trades are normal (planty of supply of cash and stock). In other words, the market of that stock is liquid, which is what SEC likes. But SEC has no control of the liquidity of the market, thus we have wide spreads.