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Strategies & Market Trends : The Final Frontier - Online Remote Trading -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (8811)	3/10/2001 3:31:23 PM
From: LPS5	Read Replies (1) \| Respond to of 12617

A large sell order lowers price in two ways: first, if the buyside trader/PM selling the issue is clumsy and posts the entire offer on a transparent trading medium, whereby other market participants see the offer, note that a huge seller is in the wings, and start wacking bids to get out. Second, if the buysider goes to a dealer (the preferred way of trading size, by the way) via sales traders and the sales trader, intentionally (very, very rare) or accidentally (not uncommon) reveals to other clients that there's a big seller "out there." The same - ill-advisedly posting a huge bid or sales traders revealing to other institutions that there's a big buyer in the market - applies to size purchases. First of all, a crossing network solves the problem by eliminating those potential informational leaks: the institution would submit their buying or selling interest directly into the cross via their trade order management system interface ("OMS") without having a dealer, specialist, or sales trader involved. Second, by crossing large prints via a black box methodology, there is no transparency with the exception of the print after the trade takes place. So, no frontrunning can occur. As previously mentioned, this also serves to raise the liquidity of a system as entities of all sizes, representing all types and sizes of trade interest, have an incentive to put their entire order into the cross rather than, as is the practice in the continuous market, feeding the order into the market via methodologies previously mentioned. This incremental introduction or orders into the market also raises the risk of large orders, as price impact can cause buysiders (or the dealers acting on their behalf) to, in a panic, trade speed for price performance, which creates even more impact. POSIT, which operates a black box crossing network in this way, already executes something to the effect of 50 million shares per day in 8 crossing session, has and continues to grow rapidly over the years, and has executed blocks of 1 million shares or more on a few occasions in a single print. The author apparently sees this as an affirmation of the model and appears to desire this as the primary stock market trading and price discovery system, rather than the peripheral trading systems which they currently are. I agree, but don't think that it's pragmatic. The theory, and the benefits evident via the existing POSIT, AZX, and eVWAP systems can't really be argued with other than the convenience that people desire which those systems do not offer...convenience and speed for which market participants often suffer adverse pricing and trade performance as a result of. LPS5