I was watching Tom Vacar on KTVU (Channel 2, Oakland, CA) last night...He was talking about Nasdaq 5000, and he was talking to a Schwab spokesperson in their main office in San Francisco. He mentioned that the Schwab site was down on Wednesday and asked why it happened. The Schwab lady (whose name I forget) said that it was because of too many people trying to access the site at one time. She said that they are experiencing 100 million hits a day, and they are working as fast as they can to add more capacity. I had no idea the volume was so high, and apparently this is what is causing problems to all online trading sites. I don't think that even the best planners could have seen that we would get to this kind of volume so quickly, so I expect to hear about more gridlock on all trading sites for the next year or so. The online traders have plans for increased capacity, but can they actually get the parts? Can capacity be built fast enough? We need to accept the fact that millions of people around the world are jumping into active online trading and the digital stampede is on. Here's an interesting article about trying to bring online trading to where it should be, speedwise is ok, but capacitywise???
Back to lurking,
CMM
Business Week: March 20, 2000
Finance
Commentary: The New Markets Need Tools, Not Rules
All the king's horses and all the king's men never faced a challenge like this. The Securities & Exchange Commission has pushed the Humpty Dumptys of stock trading--the New York Stock Exchange and the Nasdaq stock market--off their walls, opening stock trading up to a growing list of competitors. Now, SEC Chairman Arthur Levitt Jr. is considering whether to put the markets back together again.
The SEC should leave its glue pot at home. Technology and competition broke open the markets, loosening the oligopolistic grip of the NYSE'S specialists and Nasdaq's market-makers. Now, new technology is emerging to cope with the side effects. Fledgling companies are at work on products that will assure investors the quickest executions at the best prices--even in fragmented markets. Levitt can help investors by ensuring that they get the information they need to make the best deals, not by forcing trading back into its old shell.
SMART ORDERS. True, the new world of trading has problems. New electronic minimarkets, called electronic communications networks (ECNs), have snatched more than 25% of trading volume in Nasdaq stocks and are poised to divert trades from the NYSE's floor. The danger is that, as trading splits, investors won't get the best prices. An order to buy Intel Corp., say, may be trapped in a Nasdaq market maker's queue, even if an ECN elsewhere offers a better deal. Or a broker may send all its orders to the market maker offering the richest payments for order flow. The SEC is considering a raft of new rules telling brokers how they must handle orders to cope with these risks.
But what if an investor had an electronic assistant that scanned all the exchanges, ECNs, and market makers, found the combination of price, order size, and speed that best met his or her needs--and automatically filled the order in milliseconds? Many companies are developing just such ``intelligent order routing' for stock and option traders.
>>>>>>> For two years, CyBerCorp.com of Austin, Tex., has employed its price-seeking program to help high-volume professional traders. Now that it has been acquired by Middle America's favorite online broker, Charles Schwab Corp., CyBerCorp figures it can defragment the market for small investors, too. ``We pull all the best prices together in one place and create a single pool of trading,' says Philip R. Berber, CyBerCorp's chairman. That's exactly what the SEC says it wants.
One problem such systems face is traditional markets' antiquated technology. Hooking up high-speed Net servers to the NYSE-dominated Intermarket Trading System ``is like connecting a Pentium III to a coffeemaker,' says NYFIX Inc. CEO Peter K. Hansen. His Stamford (Conn.) firm, which offers brokers and ECNs 500-plus fast electronic links that carry orders for 300 million shares a day, is creating a parallel network that could supplant traditional markets.>>>>>>>>
Soon, NYFIX plans to offer brokers the chance to match orders within its network for a small fee, with no dealer spread. That should give buyers and sellers a better price.
SOPHISTICATION. Technology is also helping brokers pioneer creative ways to trade. Former SEC Commissioner Steven M.H. Wallman is launching a brokerage, Folio[fn], that lets investors buy and sell packages of stocks--a ``folio' of, say, 28 Internet stocks--for one fee. Eventually, he says, individuals will strike the same sophisticated trading deals that institutions do--paying 6 1/4 cents extra for Cisco Systems Inc., say, to save 12 1/2 cents on Microsoft Corp. The one-size-fits-all rules being debated at the SEC could ban such techniques.
The best way for the SEC to help investors is to let these tools blossom. One idea the SEC has floated would help: requiring markets and brokers to publish trade-execution records. If customers see how often their broker gets them a better-than-market price--vs. how often the broker sends trades to the market offering the best kickbacks--they would seek out smarter order-routing tools with gusto. That would do more to unify market access than any regulatory fiat.
By Mike McNamee
McNamee covers finance from Washington.
Copyright 2000 By The McGraw-Hill Companies, Inc. All rights reserved. Any use is subject to (1) terms and conditions of this service and (2) rules stated under ``Read This First' in the ``About Business Week' area.
3-9-00 4:47 PM |
