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Strategies & Market Trends : From the Trading Desk -- Ignore unavailable to you. Want to Upgrade?

To: Darren who wrote (3297)	6/17/1998 8:08:00 AM
From: steve goldman	Read Replies (1) \| Respond to of 4969

Darren, That will get you close, but there is a tremendous amount of business does at the inside bid/ask that is done between firms NOT on the bid/ask. ie.. lets say abcd is 10 x 10 1/4 MASK x GSCD (the mm's). if you saw prints at 10, the first inclination is that it could be MASK buying. Could be..could be soes trades to him, snet preference...could also be market makers who are hoping for liquidity, orderflow, that is, they dont want to be at theinside market, but DO want clients of theirs buying at some moment and selling at the same moment. They MUST be competitive with inside, cant print outside it....ie..inveestor does biz with LEHMan...call lehman "buy me 1000 at market" ...now lehman isnt at the offer, but lehman WILL sell stock out of inventory (possibly going short) at 10 1/4 and bid on snet (without changing inside picture) at 10 1/8. So as a contra argument, if you saw prints at 10 1/4, then someone up bid to 1/8, you'd think they were buying for inventory when infact they just sold and were covering short. That is the whole concept behind market making. Lets say Lehm gets a seller,sell to lehm at 10...now lehman has to ditch those shares., they could smack the bid or they could offer at 10 1/8on snet (no change to inside) or go to the offer. Now LEHM is at 10 1/8, and someone wants to buy, a client of GSCD, well now GSCD has to match the inside offer even though they are not there. To be honest, (and I think this applies to all players), if yo have true stock to buy, you try to do it away from the offer, that is, DONT attack the offer or you move your own market against yourself. This is usually with size..ie..1000 shares no prob..if you want improvement go for it, else smack offer...but if you have 5000 to buy, you attack the sole offer, you might only get 1 and move it up 1/8 or more...so go to someone else, someone who wants the flow and is willing to be compeititve with inside offer...do 2 with them, 2 with someone else, then maybe go to the offer. This is how order flow comes in. For a market maker, whether they are on the offer or bid, they want firms bringing them orders on the bid/offer at any given moment, and they just clean up on the spread. My answer - careful in assuming that the bidder is buying stock...i would say the inside player might take as little as 10% to as much as 100% of the business. -Steve@yamner.com