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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: robnhood who wrote (21524)	7/12/1998 11:06:00 PM
From: Robert Graham	Read Replies (1) \| Respond to of 94695

Thank you for your very important feedback. I think the TSE was ahead of its time when it came into existence with their computerized "book", but now I here rumblings of plans to turn TSE into more of a NASDAQ style market which IMO is not to the benefit of the outside trader. Is this the direction that the TSE is heading? It is interesting that the computer matching of orders creates the opening price of the trading instrument. Looks like computer facilitated market making has gone further than I thought over there on your exchange. Do you see the possibility of a completely automated trading system with no MMs? This seems IMHO rather naive. First off, no computer can judge the price action the way a trained and skilled human mind can to facilitate both the liquidity function and their profit function of the MM at the same time, which can be contrary aims if not handled properly. I am terming the "profit function" here as the necessary objective of the MM to make a net profit for his efforts and to be compensated for the risks that he undertakes in the market. So what MM outfit would want to entrust to a machine their capital in the markets with the possibility of losing significant amounts of money which can happen trading counter to the market? Furthermore, in order to facilitate a profit since the NYSE Specialist like you trades against the prevailing market much of the time, the Specialist on that exchange also trades intraday to help generate their profit which offsets losses that are incurred in performing their daily liquidity function, which I think referred to as "fencing". So would this computerized system also be able to handle the Specialists profit function? If they cannot make their profit, the Specialist (or market maker) will not be there to perform the liquidity function which means that traders will not be able to successfully perform their own "profit function" in the markets. Also, I understand with illiquid stocks an automated system of trading will actually reduce liquidity compared to its non-automated counterpart. Is this true? I understand that you may not at this point in time have had to deal with the possibility of a completely automated system, but what are your thoughts on this subject? As far as my own orientation to the markets, I have made the markets for a while now an important focus of study, particularly the last few years. I believe that I cannot know enough about the markets as a trader. This makes up a part of the frame of mind that I have in my approach to the markets. I just do not understand why many if not most who trade in the markets do not make the effort to understand even the more rudimentary aspects of what they involve themselves in. For instance, many if not most do not know how their order is executed, what a "market" (or exchange) actually is, and even do not understand the very instrument they are trading, like options. On my next trip back East, I am planning on visiting Toronto and the TSE. I will be asking allot of questions when I get there. So some generous individual over there may end up regretting my visit. ;) Bob Graham