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

To: Jon Tara who wrote (8979)	6/16/2000 6:04:00 PM
From: Wayners	Respond to of 18137

Lately, they are willing to represent customers at the bid/ask, even though they don't make a dime on such a transaction. Market makers have been required to either fill you at your price or represent you to the whole market within 30 seconds. These order handling rules have been in place since 1997 after market makers were caught colluding on artificially wide spreads. The "backing away" that you see might be nothing more than individual investors pulling their bids or offers. I don't have backing away problems with NITE and MASH. Just HRZG. Could be they have crappy electronic systems. All I know is sometimes when I hit thier bid or their ask, the order just sits there for what usually takes up to maybe 10 seconds, takes HRZG a lot longer 45 seconds, a minute--presumably to decide which way the market is going first before making the trade. ONe time I was on the phone to my broker complaining about HRZG backing away (and I never complain, but this time was so blatant). I left the order in there and did not cancel it. While I'm on the phone, a full 5 minutes later, they realized their mistake and gave me the fill. Individual investor orders would disappear immediately and not languish while everybody hits it and the quote just stays there. All of this is going to get fixed soon enough whereby market makers won't be able to leave stale quotes out there for 17 seconds. The SOES bandits might be back.

To: Jon Tara who wrote (8979)	6/16/2000 10:45:00 PM
From: LPS5	Respond to of 18137

Let's talk, for a moment - since we haven't discussed it before - about how payment for order flow relationships are typically structured. This is a general description, and does not describe any particular firms' rates or policies. First of all, the schedules for payment that an order entry firm will receive is divided by the number of trades per day they send to the market making broker. For example, there might be a PFOF schedule for firms sending 0 to 10,000 trades per day, one for daily volume of 10,001 to 25,000; for 25,001 to 50,000 trades in a day; and one for daily volume of 50,001+. Many of these schedules also pay only for orders - or on properly aggregated odd lot interest - equalling 100 shares or more. Next, each of the average daily volume schedules are divided first by the price of the stock, and then by the size of the spread. For example, $10.00 may be the threshold. There will be a payment schedule for $10.00 and below, and $10.01 and above issues. Within each of these schedules, there are tiers which determine payment based upon the spread at the time of execution: 1/8 and above; 1/16 to 7/64; 1/32 to 3/64; less than 1/32; and "no spread." Finally, there may be a surcharge - or a policy not to pay out at all - on stocks in which the executing firm does not make markets. So, simply put: the generally common elements determining the payment a firm receives for sending its' order flow to a market making firm are: 1. Daily volume sent 2. Price of stock 3. Size spread 4. Covered/uncovered security 5. Type of order [and this is the clincher] The majority of order flow rebate plans explicitly tell the sending broker that they do not pay for: 1. Manning/price improved orders 2. De minimus orders (the odd lots I mentioned earlier) 3. Non-marketable limit orders PFOF deals almost exclusively only reimburse for market and marketable limit orders. And, one last thing: the payment can be in two forms. Cents per share, which is the way we've all heard of. Less common, but still practiced is payment based upon a percentage of the principal value of the order. LPS5