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Strategies & Market Trends : Level II Trading -- Ignore unavailable to you. Want to Upgrade?

To: Morpher who wrote (302)	3/2/1998 12:55:00 AM
From: Dan Duchardt	Respond to of 1086

Morpher, My comment was an example to illustrate that using an ECN to create the inside market does not put you on an equal footing with a SOES eligible MM. What I stated was based on what Datek publishes on their web page, which is that for any marketable order they will first scan Island for a match, and if there is none they will then send it to SOES. It says nothing about executing against other ECNs (unless they have changed it recently). You asked Peter a good question. If he says Datek will execute a marketable order against instinet, and absorb the loss, so be it. I have no inside information to refute his claim, but it is not stated in their published description of order handling. Going back to the original purpose of my comment and example, if you place a non-marketable limit order with Datek it gets entered into ISLD. Once it is in there, and the market moves to meet it, even if there is a matching order it may not immediately execute. I've seen ISLD "locked" with other ECNs and MMs (sitting at the same price on opposite sides of level II). What should happen, according to Datek's description, is that when your order is at the inside market, if another Datek user enters a matching market order, that order is executed against yours instead of it going to SOES. But if you're not alone at the inside market, the Island users are the only ones likely to execute your order, so your chances are limited. Before seeing level II, I played with low volume stocks with wide spreads, placing limit orders between the bid and ask, watching the inside market change in response to my order, and then watching executions going off at my price without mine ever getting filled. That's because some MM decided to match my price and he got the executions. He has the advantage of SOES eligibility. ECNs are not his equal. Dan