To: Chuzzlewit who wrote (35151 ) 3/21/1998 11:53:00 AM From: Mohan Marette Read Replies (1) | Respond to
NASDAQ a big 'rip-off',ain't it??? Daylight robbery even. the amusing part is that this is all done in day light. I wonder what the heck is the SEC for??? I won't be surprised if they are in it too!! I heard about the study conducted by the professors from Ohio and Iowa and I am surprised to see nobody has done anything about it yet.No wonder I hate these bastards. in 98.3% of Nasdaq trades, a marketmaker inserts himself between buyer and seller. He isn't there for his health; he's there to bite off 1/8 of a point or more. Those fractions can mount up when you are moving nearly 2 billion shares a week. According to Abel/Noser, average Nasdaq spreads are roughly double those on the NYSE--38 cents versus 19. This was confirmed by a March 1996 draft study on trading costs and exchange listing by Paul Schultz, a professor at Ohio State University, and Mir Zaman, a professor at the niversity of Northern Iowa. The academics found that on small trades, effective spreads usually increase by more than 100% when a stock moves from a listed market to Nasdaq. marketmakers? They include big retail investor firms like Merrill Lynch, Smith Barney and Charles Schwab's Mayer & Schweitzer, giant trading houses like Goldman, Sachs and Salomon Brothers, so-called wholesale firms like Herzog, Troster Singer and Sherwood Securities and hundreds of smaller firms like Ryan, Beck & Co. and Key West. In fact, much of the volume that looks so impressive on Nasdaq is not investor meeting investor but marketmaker meeting investor or marketmaker meeting marketmaker. Actually moving a share from one investor to another may involve not a single trade but several: seller to marketmaker; marketmaker to buyer. John Gould and Allan Kleidon in the Stanford Journal of Law, Business & Finance in 1994 analyzed this method of counting volume and concluded that roughly 41% of Nasdaq volume is investor-generated. The rest--59%--is marketmakers trading among themselves, known as "the churn." Double- and triple-counting volume achieves a couple of things. It creates the illusion of liquidity in a stock. It also explains why a single day's trading in a Nasdaq stock may represent a major part of its float. Not a big turnover in ownership but simply trading the same shares several times in the day may have accounted for the bulk of the action.
