Hi LG,
Thank you for your response. I particularly appreciate your use of the (prize)fighter analogy; it makes me feel right at home. :) (Was that a lucky guess, or have you seen my thread?)
The market has changed a lot since the eighties. But you don't need me to tell you that, although I'm sure that Ney himself would agree that the relevance and applicability of his assertions relating to manipulation then are greatly reduced now as compared to then.
I still - respectfully, as you have been respectful to me - completely dismiss the notion that manipulation is the "primary" pricing mechanism of equities across the spectrum of listed and NASDAQ issues. It's not even secondary or tertiary.
A more apt listing of the factors influencing security pricing would be outstanding interest; dealer/institutional/retail ownership percentages; and overall market activity. This is to say, how much stock (bonds, contracts) is out there, who is holding it (both long and short), and what 1) the issuer, 2) its' sector, and 3) the broad markets are up to at the time we review the price.
Is there deception? Sure - at times and in certain, perhaps many, issues, given market conditions and other factors. Manipulation? Sometimes in select, very small issues and rarely, if ever, in large issues.
What most people would like to call manipulation is simply market forces which they can't, or won't, understand. If a dealer buys up all the stock they can, they do so risking their capital and holding the issue in inventory. If they sell to (at) a point where their average liquidating price is below their position average, they have a loss. Dealers are on the whole far more concerned with the actions of other dealers than with public order flow, with the possible, occasional exception of wholesalers.
I think if more people saw and understood, rather than reading about or - worse yet, feeding off message board banter - what goes on behind trading desks, how trading systems work, and the like, they'd see the folly of the majority of such conspiratorial assertions. Again, not all, but most.
Indeed, it would equally ridiculous to assert that there are no manipulative or off-color actions undertaken on Wall Street. I tell anyone who asks me, though (and some who don't, truth be told) that places where far more reform is needed than on securities trading desks are on security analysts' desks and in the registration, supervision, and disciplining of stockbrokers and the retail firms that employ them as their primary business. Yes; there are places where reform is certainly required, but all too often trading is entirely misunderstood.
Trading activity and intent, in fact, can rarely if ever be accurately gauged in the absence of other knowledge from simply looking at quotes and displayed trades on a Level II screen. All one sees is the dealer quote and his displayed size. This is analagous to the parable about the blind men, describing an elephant via tactile means. [Upshot: Those separately holding the tail, ear, the trunk or touching the hide describe entirely different animals.]
Unless a firm is tiny, the various goings-on at the sales traders' desk, a firm's institutional flow, trades that go into ATS', options and convertible activity, and other factors influencing a large firm's positions are all impossible to read from watching one trader's moves on the box.
It is my experience that blaming market makers for ones' poor trades is a far more comfortable - blissful, to hint at an old adage - alternative to either taking responsibility for ones' poor trades or admission that, just perhaps, one doesn't understand what the hell they're looking at. And, in fact, that what they're looking at can be perfectly in line with the firm's inventory and/or interest in an issue or completely opposite its' position.
Most likely, that the market maker's action alternates between being perfectly correlated with his/his firms interest and position and an inversely, diametrically opposed correlation with the actual, unknown position or interest hundreds of times during the trading day; and, of course, it is impossible to know which are which and when the trader's quoting/trading profile switches.
As for spoofing, I don't personally see any manipulation there at all; while I nearly always applaud the regulators (SEC, NASD, NASAA inasmuch as it represents the State Securities Bureaus) actions, I sometimes question the implementation of such, as I did/do with Reg FD and the pace at which they are pushing into decimalization. Without getting into too many details, I'll simply post links to my posts indicating my thoughts on spoofing.
Message 15167903
Message 13236277
Finally, with regard to your thoughs on Level II...I agree on both points: making such available was toward a better market (increased transparency, a counterfragmentary benefit) and made for a more level playing field, but has come with some noteworthy pitfalls as well, not the least of which - as I explained earlier, the dangerous (IMHO) illusion of clairvoyance that it brings.
Well...perhaps that illusion is not so much brought as delivered, or promoted, by business interests peripheral to the brokerage industry who "sell maps to the gold mine," to to speak.
To me, the suggestion - often endorsed by assorted purveyors of trading books, training courses, seminars, and other products purporting to put individuals on a "level playing field" by offering them "instruction" in how to read Level II screens - is that that individuals should "micromanage" their trades and move toward a more second-to-second trading bias.
This is hardly appropriate for all (probably most) investors/traders, and I believe should be de-emphasized as compared to reading charts, doing good due diligence, and most importantly - building experience in the markets.
Regards, hope to speak with you again sometime.
LPS5 |
