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Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: Dan Duchardt who wrote (7460)	3/15/2000 11:47:00 PM
From: LPS5	Read Replies (1) \| Respond to of 18137

Heya, Dan... If I am bidding 50, 1/4 offered and the inside is a teeny by my (+) quarter, and I get a customer limit order to sell at 3/16, I would have to change my offer quote within 30 seconds of getting that offer. I would also, if a customer limit order came in at my inside market price, have to add that volume to what I'm showing UNLESS it's 10% or less of my size (i.e., if I'm showing 1000 shares at 50 1/4 offered, any customer order of 100 shares or less don't have to change my size for). If I am not at the inside market on that side of the quote, I don't have to change my quote. Any customer can ask me not to display their order, no matter what the circumstances, and I won't. The no-display policy, cannot be "institutionalized," i.e., I can't tell customers, "If you want me to trade your orders, you have to agree that I don't show your orders." SEC has made it clear that they don't accept that. In addition, there are other exceptions: block orders (10,000 shares or greater than $200,000 in mkt value) are not subject to the display rule. Nor are orders I send to another broker-dealer, market, or trading desk. Nor are orders I decide to execute immediately upon receiving them. I can also send orders improving my inside market to ECN's ("laying off"), but thats a long, long story we can get into at another time. Look, here's the deal. No market maker is required to accept any customers' limit orders. It's not a rule by any stretch of the imagination. Those that do (which is most all of them), must adhere to the Manning rules. Basically this says that I have to fill customer orders immediately upon entering a proprietary order that would have filled the same order. If I am quoting (once again) 50 to the aforementioned quarter, and I have a customer bidding with me at 10 for 1000 shares, if I take a single share for myself at 10 or better, I have to fill the customers order immediately at that price or better. Immediately. But what is "immediately"? Immediately is generally 60 seconds...depending upon market conditions. Frontrunning and trading ahead are two different things, as I mentioned in an earlier mesage. If a market maker simply puts his order in front of a customers' order or a big block of stock, that's "trading ahead." Bad stuff, which as I mentioned is closely watched via electronic and compliance policies. "Frontrunning," on the other hand, is similar but different. If I am on the desk, and I hear that another department is working to buy a big block of stock, I have to wait until either the trade is printed on CQS, NQDS (that's the real name of "Level II"), or SIAC before I try to jump on the coattails of that order. If I had to specify the sketchy difference, it would be that "trading ahead" is a procedural faux pas whereas "frontrunning" is more like insider trading in that it involves information not yet public. Something like that. Dan, does that answer your questions? LPS5