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Non-Tech : Datek Brokerage $9.95 a trade -- Ignore unavailable to you. Want to Upgrade?

To: Jack Zahran who wrote (6203)	12/8/1997 12:52:00 PM
From: Jon Normile	Read Replies (4) \| Respond to of 16892

Dear Customers, The topic of how Datek Online routes orders is very important one. As we have said before, we feel that Datek offers the best order execution service in the online brokerage industry. The last few days, some very valid questions have been raised on this subject. There has also been a great deal of misinformation passed around. To clear up these confusions, allow me to shed some light on our operations. Q. Does Datek Online trade ahead of its customers? A. No, Datek does not trade ahead of its customers. This is a very serious matter since, in the past, brokerage firms have been found guilty of this abuse. Let me explain exactly what it means. When a dishonest brokerage firm received a buy order from one of their customers, they would slip in an order of their own ahead of their customer, to get the best offer. They would then be long the stock and their customer would still be trying to buy. The broker would then offer his stock at a higher price making an immediate profit to the customer's disadvantage. This type of dealing is illegal. It is specifically prohibited by the SEC in the Manning act. All of Datek Online's systems are designed to prevent this from ever happening. As everyone should know, our customer orders are always checked versus Island. If there is a matching order on Island, then our customer will execute his trade automatically. That is how we offer price improvement. Also, Island has time priority unlike the NASDAQ. With time priority, there is no way that we could insert our own order in front of our customer's order if the customer's order was entered first. This is one of the great benefits that Datek Online offers to our customers. Using Island, our order execution is transparent and fair. Under no circumstances do we trade ahead of our customer's orders. At any customer's request, we will send a written letter attesting this fact. Q. What does it mean when Datek is labeled as a principal on my trade confirmations? A. According to SEC rules, any trade with Island is labeled a principal trade. This is because Datek is the sponsoring firm of Island and Island 'gives up' all of its tickets to Datek. What does that mean to Datek Online Customers? It means that for the majority of trades, Datek is listed as a principal. For those trades that we need to contact market makers directly, we are listed as an agent. Being listed a principal does not mean that we are we are trading ahead of our customers or selling order flow. Eventually, Island will be registered as an independent exchange. When that happens, it will no longer be necessary for Datek to be its sponsor. Then, all of the principal trades will be labeled as agency trades. Q. Is Datek Online a market making firm? A. No, Datek is an order entry firm. This is otherwise known as an unregistered market maker. This means that we don't make markets (except for TESTB and QGLY) but we do enter orders on behalf of our customers. Some of you have claimed that that we don't fully represent our customer orders. Let me quote from a previous post. "I just spoke with a NASD employee regarding what it really means to be non-registered as Datek is. Nasd likes to refer to these fims as Market Participants since they DO NOT FULLY REPRESENT YOUR ORDERS as do the registered MM's." I can't speak for what other firms do who share the generic label of unregistered market maker with us. However, I can say that Datek Online represents our customer orders to the entire stock market via Island. This can be easily demonstrated by placing an order in a stock inside the spread. If your order represents the best price, you will see the market change to reflect you order. As far as I know, Datek Online is the only brokerage firm to offer this benefit to their customers. Q. Why is the daily trading volume for Datek greater than the daily volume for Island? How can that be if they send all of their trades through Island? A. Apparently, the difference in volume between Datek and Island makes some people believe that we aren't properly representing their orders. As I have said before, that is not the case. The excess volume from Datek that is greater than Island's comes from trades not done on Island. However, that doesn't mean that we are not properly handling them. As you know, market ordes and marketable limit orders are processed for immediate execution. Whenever Island doesn't give the best price, we take the customer's order directly to the market making firms. In those cases, the trades show up as volume for Datek and not as volume for Island. The only reason we do this is to get the best price for our customers. For non-marketable orders, they always go to Island and, if they are executed, they always are reflected in Island's trading volume I hope this short letter answers your questions and clears up any misunderstandings you might have about Datek Online. The Silicon Investor Thread is a valuable tool for Datek Online to understand and hear the needs of our customers and potential customers. We read this thread periodically for input and suggestions. However, this thread is not a forum for formal complaints directed toward Datek Online. If you have a specific complaint please direct your complaint to our Customer Support (support@datek.com) or Compliance Department. Jon Normile Datek Online