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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Satyr who wrote (14804)	1/18/1998 5:21:00 PM
From: Vaughn	Respond to of 70976

Thanks for your response. That is essentially the same thing my broker told me. I accepted it at first until it occurred to me that if and when an at market price buy order comes in, it is essentially a bid at my price which is lower than the posted ask. If this isn't how it is done, what is to keep the market maker from establising a larger spread and selling his holdings for substantially more than my ask price. The result would not only impact me and the unsuspecting buyer, but also artificially change the market price for the stock which would impact following trades... I'm confused!!!

To: Satyr who wrote (14804)	1/19/1998 1:04:00 AM
From: Clarksterh	Respond to of 70976

Actually, for NASDAQ stocks it is possible that you can outbid the market makers with a limit order, if your broker makes a market in the stock. Otherwise, you are stuck waiting for the bid to come up to your ask or the ask to come down to your bid. (When they implemented this rule in early '97, the spread dropped dramatically (30-50%)) The problem is that unlike the NYSE, the NASDAQ is not an open auction. Instead they use Market Makers - the supposed rationale is that the size of the companies is smaller than on the NYSE and MM are required to retain liquidity. I've seen rumors that NASDAQ is considering moving to a system where limit orders are included on the system, regardless of whether your broker makes a market, but I would be suprised if it happened since it would completely remove any profitability from the MM (and they would all quit), and the MM probably really are needed for a lot of the smaller stocks. Clark