To: steve goldman who wrote (2061 ) 12/17/1997 6:47:00 PM From: David Smith Respond to
Steve, my example was slightly oversimplified. Regarding the orders we get from customers, 50% are limit orders (those having a floor if the order is to sell, and those having a ceiling if the order is to buy), and 50% are orders to "work" (i.e., buy up to but not exceeding a certain number of shares at the best possible price you can get). If you were a client like a mutual fund with a large, very complex order to buy or sell and you needed it done FAST, would you rather pay a straight commission to the MM, or would you rather have the MM working for himself AND you? When I work an order, if I don't do it well and for some reason get sloppy (i.e., run the price up too much on a buy order or too far down on a sell order), I will often give the customer a fill at a flat price to me or at a slight loss...this is in the interests of maintaining the client relationship. If I work an order to buy a block of stock at the best price possible and buy most of it at 25, and by the time I have bought it all the stock has run to 26 bid 26 1/8 offered, I will fill the client at 25 1/8...the same price he would expect to pay if the customer was buying a listed stock and his floorman waded into the specialist crowd at the NYSE...and that crowd on the listed floor doesn't offer my liquidity, capital resources and willingness to assume at least some risk on behalf of the client.
