Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : LastShadow's Position Trading -- Ignore unavailable to you. Want to Upgrade?

To: Dave Shares who wrote (3415)	11/30/1998 9:14:00 PM
From: LastShadow	Read Replies (2) \| Respond to of 43080

Informational Post: Electronic Access At the request of some lurkers, I will start to post some information on occasion to clarify some terms, methods, etc. Since this is also in keeping with the objective of the thread, it is probably long overdue. There are four ways that traders currently get direct electronic access to the markets: SuperDOT, SelectNet, ECN (electronic communication network), and SOES (small order entry system) SuperDOT is used specifically to trade listed stocks. NASDAQ's SelectNet and SOES are used strictly to access NASDAQ. ECN's are primarily used to access NASDAQ, but some of them can be used to trade listed stocks. SuperDOT is a means of electronically accessing listed markets and executes about 40% of the shares traded on the NYSE. Additionally, about 80% of all NYSE orders go through SuperDOT, which can handle up to 99,999 shares at a time. This system links member firms to floor specialists who execute and send back a report. The specialists manually pair up the orders from their inventory or place the orders on their limit order book. The limit order book helps them establish the market. Orders normally execution seconds, but during high volume days it can take several minutes to fill orders. Because of the latter, third markets such as the Chicago Stock Exchange compete for orders by guaranteeing to fill some marketable orders at the best price. This effectively creates an automatic execution system for firms that route their orders to third markets. The other significant element of SuperDOT is that it gives individual investor orders of less than 2100 shares priority over larger institutional orders. SuperDOT is not generally available to individuals, although DATEK and some others now offer similar access. (Any brokers and online houses - Yamner included, feel free to update this information whenever you spot something I missed or explained poorly). ECN's - Electronic Communication Networks An ECN allows market makers and customer bids and offers to be displayed on national systems to others that can fill the orders. Instinet was the first one (1969) and originally catered only to institutions, then later brokerage firms. Instinet is not generally available to most investors. In 1/97 the SEC order handling rules tried to provide customer limit order protection and eliminate private markets with better prices. The rules were designed to force the NASD to ensure that customer limit orders are filled at the best possible prices. However, ECN's are only required to display orders entered by market makers, and they are NOT required to display block orders (over 10,000 shares or more than $250,000). About 50% of the order on NASDAQ are through Instinet and 80-90% of those are entered by market makers. It is represented on Level II by INCA. Island (1996) is represented on Level II quotes as ISLD, and is inexpensive, readily available to about everyone and easy to use. One enters orders using Island order entry terminals. All bids and offers that are not immediately executed will be displayed on NASDAQ throughout the world. This allows the individuals to actually establish the bid and offer, and in my humble opinion will probably be the future of NASDAQ trading. Specific information on how you can access Island should be on the web at electronicdaytrader.com Bloomberg, (Level II BTRD) is another ECN, as is Teranova (TNTO), although neither of these or Instinet has the attraction of Island as they all charge additional fees to the third parties who attempt to fill orders displayed on them. The last I heard, Bloomberg terminals were running about $1800 a month. SelectNet allows traders to negotiate prices through NASDAQ as opposed to over the phone. This gives order entry firms and other market makers the ability to enter an order in between the quote prices and potentially fill an order. The difference between Selectnet and other ECN's is that SelectNet is only broadcast to other market makers, and they do not afford limit protection, although recent ruling changes may have changed the latter drawback. The other problem is 'preferencing' as Selectnet does not have to be displayed to all market makers. SOES traders who don't want to use SOES (ie, the 'bandits') may want to trade at the quoted price and can approach the market maker directly (ie, the one who went to the bathroom and ask is a little below everyone else's…). Under NASDAQ's 'firm quote' policy, the mm is obligated to fill the order or 'back away' and be in violation of NASDAQ's rules. Selectnet and preferencing is actively used by market makers to communicate between themselves and thus avoid using the telephone. SOES - I will go into the problems with this a little later on, but basically it is the vehicle for day traders to trade up to 1,000 shares (sometimes it can be limited to only 200 shares on low volume stocks though). It also has a 5 minute wait on either side of the transaction for the same security - in other words they can't buy and sell the same security within 5 minutes via SOES - although they can use other systems like ECN and SelectNet in that time window. Broker-dealers cannot trade their own accounts using SOES, and short selling on SOES has to be done on an uptick (same as everywhere). Ok, now I actually typed this in MSWord and ran the damn spell checker to overcome my lexically disadvantaged mind. Hope this helps. lastshadow