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Non-Tech : Meet Gene, a NASDAQ Market Maker -- Ignore unavailable to you. Want to Upgrade?

To: gene_the_mm who wrote (640)	8/23/2000 2:51:40 AM
From: Dan Duchardt	Respond to of 1426

Gene, Now, my question is: Why haven't the daytraders and their offices made a big fuss over this change of status quo? I've been pondering that question myself. Unfortunately, IMHO, most of the daytrading community is focused on the expected "advantages" associated with increased quote sizes and reduction or elimination of the dead time that will take away the ability of a single MM to effectively block price movement with time spaced 100 share executions. Some of them even like the idea of being able to buy/sell blocks greater than 1000 shares. I don't have a long history in the market, so my knowledge of the story behind the SOES reform following the '87 crash is all second hand, but as I hear it SOES was intended to ensure equitable access to the Nasdaq market for individual investors. The old 5-minute rule and tier size requirements seemed to be spawned from some sense that individual investors were worthy of access to the market on an equal footing with the big boys. SOES was a mechanism for reserving a portion of the shares available for small investors who only wanted to buy a few hundred shares at a time while the big deals were being negotiated on the phone or via SelectNet. I don't consider myself a conspiracy theorist, but from where I sit the industry and the SEC are losing sight of the intent of SOES. We can argue some perhaps about the justification for eliminating mandatory tier size non-agency quotes. IMHO, shared by most daytraders, reducing minimum quote sizes to 100 shares, combined with the already existing 17 second refresh delay destroyed SOES, and that is I believe a major factor in the fantastic gains of ECN market share. What needs to be done is to restore SOES to it's intended purpose of providing liquidity for the small investor. I was nervous when I saw the proposal to allow 9,999 shares with no minimum time between executions. When they pulled that back at the request of the institutions and raised it to 99,999 I thought it was a sell-out. Once again it appears the game is to be reserved for those who have control of the big money. The more I learn about the market, and the changes that I've seen implemented in the last few years, the more I see a lot of lip service to protecting the small investor while tilting the table in favor of the "establishment". Self regulation can be very self serving. One does not have to break the rules when you get to make them, and change them to restore your advantage every time someone comes along with something like ECNs and direct access that gives them something approaching parity. And since I'm in the opinion expressing mode, the campaign to institute decimal quotes so that we can reduce spreads to give price improvement to everyone is one of the most ridiculous things I've ever heard. Except on the most active issues, spreads are rarely at the minimum with the current increments. Hanging up the sign that says you can buy a loaf of bread for a quarter doesn't do much good if there is only one loaf and 1000 people who want it. What needs to be preserved is access to shares for everyone with a reasonable markup, not a couple of cents off for the first one in line. When I see the disparity between the supposed advantage of penny increments, and the huge potential loss of availability of shares for the small investor with SuperSOES, pennies start looking to me like a diversion. Dan

To: gene_the_mm who wrote (640)	8/23/2000 6:14:54 PM
From: Don Pueblo	Read Replies (1) \| Respond to of 1426

I can answer that from my own perspective. It is true that many day traders try to "figure out" what the market makers are doing based on the size of their bids and offers. That actually worked OK two or three years ago on the NASDAQ. The big houses figured out a way to counter that...they started using the ECNs themselves. On top of that, there are a few very, very large players in the day trading business. It has become increasingly difficult to "read" a MM on a stock, fat volume or thin. Additionally, I myself see examples of a MM backing away from a firm bid or offer almost every day. Today for example, a MM backed away from three separate orders that I placed to buy a stock from him, all at the same price. He did not move from the ask, and his size did not change, he simply refused to take my order and then about a minute later, he backed away. I have instant execution and nobody else was in front of me or behind me. Yes, it pisses me off, and yes, I could make a stink about it, but it happens all the time. As a day trader, I have already accepted the fact that the man with the hundred million is not going to telegraph his moves to me or to anyone else. In other words, if the stock is at 50 X 50 1/4, and ISLD (or ARCA or REDI or whomever) suddenly appears with an offer of 29,600 at 50 3/8, a rookie day trader who just bought the stock for 50 3/16 will assume the stock is going to go down and panic if it does. That's not the way I look at it. I assume that that guy is either a large day trader or a market maker, and I watch to see if he actually sells any of those shares. If the stock does in fact go down, (to say 48 7/8 on the bid, for example) and holds, and the big ISLD offer goes away, (he was never the best ask) and the stock moves back up, I know that it was probably somebody (I don't know who) either going long at 48 7/8 or covering his short position. Just part of the game. The MM is getting the best price for his client, or the elephant day trader held off the Big Bad Wolf again and walked away with cash. These whipsaws are orchestrated IMHO simply to shake out people who are trading on momentum. True, sometimes momentum works out, like when the stock breaks through a new daily high or low, but most of the time, the size on the bid or the offer is just somebody smoking somebody else. I've sat in the same room as a firm trader, and I have watched them work. It's not a simple or easy job. I don't bother to try and figure out the head games. I don't have enough money. I just try and figure out what the guy that is playing the head games is actually doing. I have no problem with that. <G>