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

To: Apakhabar who wrote (935)	9/1/2000 4:24:58 AM
From: Dan Duchardt	Read Replies (1) \| Respond to of 1426

Apakhabar, I do not accept the premise that a "trader first" response by MMs to the "competition" from daytraders is necessary, or desirable for the market. Daytraders have largely been used as a scapegoat to justify this change, and I concede their activity is now a factor in the market, but daytrading in itself is not responsible for everything we see going on. Far from it. Daytraders did not decide to change the rules that have essentially rendered SOES useless and opened the door for ECNs to be as successful as they have been, and that's the real competition for the MM firms, not a relatively small number of daytraders who get good enough to make some money at it. They are a drop in the bucket. And daytraders do not force MMs to jump on the trader bandwagon. They do it because they see the opportunity to make money, far more than they can make from their traditional mark up. Again, it's my opinion, but the struggle that is now going on between MM firms and ECNs for market share resulted from strategic mistakes made by NASD in the first place, including their own failure to anticipate the changes that have been made possible by technology. Had they created and maintained better access to the market for small investors and traders in the first place instead of constantly trying to put up barricades to protect their rice bowl, they would still have all the action. If that mistake is costing them money now, well as they say, they have to take responsibility for their own mistakes. No, I am not suggesting that the rules of the marketplace be changed in order to protect a small set of traders from their own unprofitable emotions, or that some participants (MMs) be "singled out". MMs are singled out, but not by me. They are singled out by virtue of their preferential place in the market that carries with it the responsibility to maintain order. The example that started this dialog was from the perspective of an investor holding a position long term. Investors have to protect themselves too, and if an orderly market is not being maintained by the people who have that responsibility, then they have to protect more actively. Suppose instead of watching the market in real time, every investor decided it would be prudent to keep a 10% stop trailing their investments. That is HUGE on the scale of an expected average annual return. How many days could they get through in a row before they got stopped out. Not many these days. So maybe a 15% or 20% (two years!), or maybe they better keep their online account open at work all day long, and have their alert services signaling them every time something moves. Where is it written that participation in the market is reserved for a select few with nerves of steel? Why should investors have to be afraid to just hold through a day or overnight because the market has become a place where they could lose half their money in a heartbeat. Sure sometimes things come back, but lots of times they do not. Lots of times they fall so hard because they should never have gotten so high in the first place, but they only get there because reasonable controls are gone. If you really think the bull run this past fall and winter happened only because the stupid public was willing to pay far too much for worthless stocks, well then I have this bridge in Brooklyn... Sure the stupid public is part of the equation. It's not the whole story. The market is not that simple. Trading might be, but the market is not. I think it's a mistake to lose sight of the fact that a lot of the money that is being played with every day is the hard earned money of a lot of people who think they have an opportunity to put that money to work in a place where it can grow. If it all becomes a plaything for a bunch of steely eyed hot shot traders, there is a real danger the whole thing will one day come crashing down. That may be good for a few traders who get short, but that doesn't make it right or good from a broader perspective. The theme that runs through my posts is not that all volatility is created by MMs. I have never said or intentionally implied that. The theme is that MMs have an obligation to maintain order that as far as I can tell they often forget about because trading is potentially far more lucrative than making a market, and in their pursuit of the trading dollar they are doing the very opposite of what they are intended to do. What I find objectionable about your argument is that it promotes less volatility. How, as a trader, can you want that? Perhaps because I'm looking at this issue from a broader perspective than ME. Perhaps because before I ever traded I was an investor suffering the consequences of a market that was not under a reasonable amount of control. We all come to this from somewhere. There is plenty of volatility driven by all kinds of external forces without the market generating it internally. The only thing that will really kill it is a lack of interest that will come when all the investors get creamed. I don't need to have a market going up and down like a yo yo to make a decent return, and neither do the MMs. In fact, I'll go so far as to say that most traders would do better if a bit more order returned to the market. I hear an awful lot of traders complaining about the absence of any sustained TREND these days. There can be too much volatility too, and I think we've seen it in recent times. Well I've spent far too much time on this lately. I've said my piece. If I say any more it will be far more selective. Dan