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

To: LPS5 who wrote (7463)	3/16/2000 9:34:00 PM
From: Dan Duchardt	Read Replies (2) \| Respond to of 18137

LPS5, Dan, does that answer your questions? For the most part yes. The distinction between "trading ahead" and "frontrunning" is useful, and I realize that my questions were really asking about trading ahead rather than frontrunning. Also, the specified times for the MM to "immediately" take action once an order is received come as no surprise. Obviously, to change from quoting ones own inventory and handling the resulting executions to handling a client's order requires some amount of 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. When I first read this I was surprised. It seemed contradictory to the earlier statements about changing quotes and sizes to represent the client's order. After reading it all again though, I think what you are saying is there is an obligation to handle a client's order, by some means, but not necessarily by posting it as the MM's quote. Sending it to an ECN is one example of acceptable handling. I hope you are not saying an MM who receives my limit order can throw it in a pile of "I'll get to that when I feel like it", or choose to reject any such order after an extended delay. I recognize that we may need to distinguish here between a broker who receives client orders for processing, and has an obligation to represent his client's order to the market, and a MM trader who handles such orders. For what follows let's assume the broker has in fact passed the order to the MM trader to get it done. I was not able to dig out the answer to this part of my question from your reply. Now let's say that instead of splitting the spread, a client sends a limit order to sell at 50 1/2 (away from the market). 1) Is the MM obligated to cease selling his inventory at 50 1/4 and represent his client's order at 50 1/2? My guess is that the MM trader does not have to cease his activities to offer my stock at an inferior price to his own offer. I don't think that would be fair. But in the earlier messages to which I replied it sounded like you might be saying that, and that's why I asked for the clarification. Dan