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

To: Sir Francis Drake who wrote (10913)	12/14/2000 1:06:02 PM
From: LPS5	Read Replies (1) \| Respond to of 18137

First, I think I should embolden the operant phrase in my statement: "...I am a strong advocate of restricting, on the basis of a certain percentage of the average daily volume, the amount of trading which can be conducted outside the normal market venues in crossing systems and the like." I am not speaking of ECNs or the wide class of electronic market participants known as Alternative Trading Systems. I am only speaking of crossing systems, of which the following methodology is employed. 1. Crossing times are designated at various hourly/half-hourly periods. 2. Participants have up until one minute before the cross begins to enter an order they desire crossed. 3. At some random point within a five- or ten-minute window after the time period begins, previously entered buy and sell orders for particular issues are crossed at the midpoint of the continuous market spread at that exact instant. Perhaps an understandable position, but wholly impractical, IMHO. LOL, not at all. This type of restriction already applies to the eVWAP crossing system. I believe it should apply to all of them. Would that restriction apply to an individual MM or single market participant on a given trading day? And on whom would the burden of adhering to the restriction fall - the executor or the client? The "burden," if such could adequately be described as such, falls with the ATS. It's nothing more sophisticated than direct access trading systems having short sale or available equity/order size limits. When a certain volume has been crossed that equals the regulators' designated volume/percentage thresholds, they would simply stop crossing shares and kick back a "nothing done" message for outstanding balances. If f.ex. and institutional client wants to buy/sell a large number of shares, and he needs to have it done in one trading day, he could always break it up among several executors and specify that he wants it crossed in a given venue - there are too many ways to get around the restriction. Again, not at all. Whether broken up or in one fell swoop, the volume limits would still apply. And even if you somehow could enforce it at either end, I'm not sure there would be any benefits to be derived from the restriction, if f.ex. several market participants all had to move large number of shares independently (which can happen when MFs en masse leave a sector or buy in etc.) - you'd still get tremendous volume in the alternative venues compared to regular trading. The reason why these restrictions are already levied - and why, in my opinion, they should be expanded to all crossing systems, is this: with more of such avenues to withhold institutional forces from the market in terms of executions - and, in particular, with crossing mechanisms which both (a) are used primarily by institutions, and (b) derive their pricing from the continuous market - you have a situation whereby the orders of pension funds, mutual funds, endowments, and the like use such systems, retail orders become the pricing drivers. Institutional orders are incrementally being taken out of the price discovery process by such systems, and while they should be permitted to use such systems to some extent, it is imperative that the exploration of the continuous markets, both for retail and institutional market entities, be preserved as the central, integral part of the pricing mechanism, via exchanges, dealers, ECNs, and third market trading. LPS5