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

To: davealex who wrote (10579)	11/5/2000 10:55:51 PM
From: aldrums	Respond to of 18137

Dave, Re: SuperSoes--Once again you are being ignored, and man, I hate to see it! Oh well, personally I am just waiting for it all to go down, and reading all the news about it I can find. The day/week it does happen I think I will be watching from the sidelines, and trying to take it all in. Late, Alex

To: davealex who wrote (10579)	11/6/2000 12:32:50 AM
From: LPS5	Read Replies (2) \| Respond to of 18137

Here are my thoughts, as of right now, on one of the topics you mention: Message 14507614 I'd really have to see SuperSOES in action before I comment on it's effects on small brokerage firms, institutions, animal husbandry, and the like. With regard to decimalization, I think that - like with Reg FD - regulators' hearts are in the right place, but the measures ultimately have some detrimental effects on the markets in general. Pertaining specifically to decimalization (and briefly) it has already been proven that the move from eighths to sixteens decreased average (a) quoted and (b) executed size; now, extrapolated to pennies, the average quoted/executed sizes should get even smaller. We're all familiar with terms like "liquidity" and "price discovery," but how many of you have ever heard of "crowding"? Basically, it describes a market wherein, due to the negligible size of trading increments, large orders are habitually split into de minimus portions. So, instead of offering 1000 shares at the inside, one might quote 20 levels of 50 shares apiece. We may not see that in pennies, but I guarantee we'll see it when tenths of pennies become the increment of choice. I also believe that nickel increments should have been the first decimalization benchmark, with either two- or one-cent increments following. This, of course, for both permitting the dealers to adjust to the new financial and market dynamics of decimals, and also to ensure technological stability with the higher data volumes resulting from more frequent, smaller sizes quoted and executed. I also agree with the studies that have concluded that volatility will increase as a result of the arrival of both decimalization and SuperSOES, at least as I understand the latter at this point. Sorry for the short answers, but I've been busy writing an article for a magazine; I'll be freer to examine these and other issues by the time Thanksgiving rolls around. LPS5

To: davealex who wrote (10579)	11/6/2000 9:13:46 AM
From: Eric P	Read Replies (2) \| Respond to of 18137

Dave, I'll give your question a try, although it was so large and all-encompassing that many people may have avoided it. That's why I passed on it the first time! Regarding SuperSOES. I believe SuperSOES will be a great improvement for individual traders (if it's every implemented). It should make the execution side of trading much more predictable. Currently, you place a marketable order and are often clueless whether you'll ever get filled (unless sending to an ECN). When you DO get filled, it's often a sure sign that the trade will go against you. The new SuperSOES system should enable traders to have better access to getting market maker fills at their posted prices, which will be a welcome improvement. As far as market makers, I believe it will be a mixed bag for them. They will likely have more difficulty with their profitability on individual order executions, because of the new rules. However, this proposal probably helps them in other ways, by attempting to lure more trading volume back to within Nasdaq versus the ECN's. The anti-competitive aspects (sorry, LPS5 <g>) of the current SOES/SNET systems has made it unattractive for many people, and has therefore allowed the ECN's to blossom. This SuperSOES system will attempt to bring traders back under the Nasdaq umbrella, which will be good for market makers. All in all, a mixed bag for market makers. Regarding SuperMontage. I may be overlooking things here, but I don't see SuperMontage as a big deal for anyone. Unless my mind is going, this proposal simply mandates market makers post their own proprietary quotes separately from their customer agency quotes. It also requires them to show their top three levels of bid/offers on these customer orders. In short, a larger level II display for everyone. More quotes, more information on market depth, more data flow across the internet to everyone's machines. Not a huge change for anyone, however. Just a bit more information for digestion. Regarding decimalization. Again, much as with SuperMontage, decimalization is a small stand alone change. This proposal becomes much more significant, however, when combined with SuperSOES and assuming ECN participation in SuperSOES. Currently, a key problem individual traders face is actually getting orders filled. They have trouble getting marketable orders filled, due to the SOES and SNET rules, and are often ignored by market makers when posting limit orders on the ECN's, while numerous prints go off at their price at the inside bid or ask. In an ideal world (violin playing softly in background...), all trades would be executed to those showing the best price, with ties being broken by time priority. This is exactly what SuperSOES appears to be targeting. The remaining question is whether ECN's will agree to participate in this new system. Assuming ECN's do NOT participate, then decimalization is much more of a non-issue for traders. The ISLD ECN already quotes trades down to as low as 1/256ths. This is much finer than the penny increments being offered with decimalization. The problem is how do you attract a matching order to fill your limit order posted at 65 13/256? Yes, you have the best price posted anywhere, but you can't get filled. Now, if ECNs agree to participate in SuperSOES, then it becomes much easier to get filled. You simply post the best price on Nasdaq (quoting in penny increments as needed) and the next SuperSOES order to hit the market will take you out. That will be a great improvement. As LPS5 said, however, only time will tell. The clear effects of this new system will not be fully known until a month or two after implementation. I just hope it does get implemented... some day. December 11th or bust, -Eric