Irbs, see my modifications below...but lets start with a distinction...first there about 4000 NASD members...on many stock only about 40 or 50 are market makers. Some stocks only have 3 or 4 market makers..so it is important to understand that all stocks must trade either through a market maker which acts as principal, or the firm must act as a principal, or in the case of a client at, lets say Goldman Sachs, the firm acts as a principal AND as a market maker.
So, by definition, if you dont make a market in it, you have to route the order to another firm. the issue becomes one of your criteria and decision making process for routing the order...ie...do you route to soes and ultimately a market maker, do you route to SNEt broadcast, do you route to a market maker on SNEt, do you route to an ECN which could be an market maker on th ebid/offer cloaking in the eCN, or do you route to an ECN that is a client order (thus giving the client the ability to display a bid/offer like a mm), do you use a auto-ex electronic system to route an order to a bidding offering market maker, do you use an auto-ex to route to a market maker not on the bid/offer but one thta is willing to be competitive with the inside market ?
There is much to it...so many different stocsk, so many market conditions, so many systems and so many questions above....
so dont frown on a firm that routes an order, essentially all orders are routed. I would always rather be with a firm that has tons of choices and goes to the best bid/offer or the best system that gets the best/fastest (whatever is best for you) trade...if you think you're better off with GSCO account becuase you dont have to go through someone, i think you're wrong....thats like going to a car dealer in a one car dealer town, that wont go to any other neightboring town because they are compeittors and they want to do the business. they dont make market shitting a competitors bid and filing their ticket..they try to make the spread and often cost you a good execution.
With that said (and by the way, I hope when I write everyone understands what I am talking about.l.never claimed to be a good writer and sometimes I understand it because I am writing it...if you need clarification, cut and paste it into a new post and i'll be happy to expand).....
with that said... lets look at the list below...i'll put **before my modifications....
" 1)The order is received from client by ****the brokerage firm whether it be a firm that a) has its own agency, nonproprietary (that is, it doesnt trade for its own account..ie. yamner) trading desk, b) that has no trading desk and simply autoroutes everything to a market maker (may online discount brokers), or c)is received by the sales desk of a firm that has its own proprietary trading desk (market makers ).
((Side note, and I hope the side notes dont get too many - every firm, a market maker or a lowly discounter, is a firm...its a matter of who your clients are...yamner has individual retail clients, hedge funds, mutual funds , ie...retail and institutional clients....but a firm like MASH or NITE doesnt have retail or instititional clients, but they have firms as clients)....
1)The order is routed for execution via computer to inhouse order desk (if your firm is a market maker or acting as a principal, the worst of the scenarios) or to other firm's trading desk(sold as order flow) (**again, if you are scenario 1, it has to be routed, and if the firm gets paid, its not a big deal, unless getting paid means you go to the worst market, cost your client a 1/16th so you can make 2cents...if NITE or MASH or TSCO or GSCO have the best trading desk, will offer greater liquidity than the inside market, offer autofills in the worst market conditions, if they also pay you 1/2 cent a share , so be it...the issue is when a firm autoroutes everything to abcd firm and builds the order flow into their business model, without discriminating...).
3) The receiving trading desk, whether internal or external, can execute or reoute the order (**another issue...a market maker can reroute your order to an ECN...i never do biz with a market maker if they ever reroute.)
4)Firm executes the trade and the seller prints the trade to the Nasdaq...on the act system with the two firms locking in on ACT.
Act is a system which permits firms to "meet", electronically, and confirm a trade, lock it in so neither can back away later.
7) Act sends the trade to your clearing firm. If you bot 200 AOL...200 aol is delivered electronically (on ACT sheets) to your clearing firm the next day.
8. On trade date, your firm books into your account at the clearing firm the trade...it is matched, reconciled with the stock being deliverd by act...if the price or any item is booked wrong, it is referred to as a break...ie..you bot 200 aol 109 1/4....my clerk enters it incorrectly as 19 1/4....the next day the clearing firm sends a break...
Yamner:
AOL 109 1/4...booked 0 Compares 200
AOL 19 1/4 Booked 200 compares 0.
this is referring to what we booked into your account and what the street side is coming in with.
in this case, an erroneous confirm goes out to client which is followed with a cancelling confirm and then a corrected confirm. Basically its a small goof up on the trade, yet hopefully the client was not brain dead and didnt think they got 19 1/4...someone asked this the other day, its what you did, not what you were reported.
Lets take a trade at Yamner step by step:
1. Phone rings and is diligently answered within 2 rings by my trader (figure 4 seconds from the clients end), else the clients uses the real time video conference server or icq, or has emailed a bunch of premarket opening orders (**had to get a little solicitous garbage in here<<GG>>)...
2. Depending on client and the clients objectives, whether it be a superfast trade, a trade they want us to work, or a trade where they need some advice, etc. (all goes to knowing your client and developing a strong relationships)...etc, lets assume its a fast moving stock...our trade would immediately enter the order onto one of 5 autoex systems upto a certain quantity while stabbing a conditional bid on an ECN inbetween if its possible...a fill on the ecn autocancels the autoex, yet if the stock cant be improveed, we autoex the trade.
The trade could also be routed on snet, soes, etc, we sit right on the nasdaq circuit, yet these are less preferable systems. ECN can be employed in conjunction or independently of other systems etc.
Lets go to the most unknown, confusing scenario...the phone based trade...many argue phone based trading is old...first, you know i think its the best for clients to get to us...well, the same analysis can apply when I want to get a market maker on the phone to do the trade...
a..most mms pick the phone up quickly and will give a fill in a second or two...those that dont, we dont go to...
b. ok, so in this scenarios, lets say its a sizeable, order, to buy 10,000 ABCD at 50 1/4...its 50 x 50 1/4...relatively fast moving...i might but a bid out at 50 1/16 or 1/8 while i am calling the market maker...might show them 4000k at 1/4, get the autofill in 5 seconds, if nothing done on the ECn, i might do another 2k when they come back with the fill on the first 4k, wait a bit on an ECN , if nothing by the time they come back on the 2nd 2k, do the balance...
There are so many scenarios, so many situations, you simply have to have a great firm, a trust broker that you feel is on your side, that you dont second guess or doubt their focus or sincerity.
clients gets a report, holding on phone, on email, icq or video conference server, or immediate return phone call, whichever they prefer, all within the minute, etc.
Ok, the trade is done now....
I go to my nasdaq terminal (which gives access to the ACT locking in system)...i do an unmatched, unlocked search and there I might see..
YAMN BOT 4000 ABCD 50 1/4 GSCO
YAMN BOT 2000 ABCD 50 1/4 GSCO
YAMN BOT 2000 ABCD 50 1/4 GSCO
i highlight, and select each line and we are now locked in, neither of us can back away..
I then give the ticket to the clerk that books it into your account...
and here is where they could make amistake and enter bot 4000 abcd 5 1/4 ....
the next day you get a break....
street says 50 1/4
you booked 5 1/5..
you have to "cancel and rebill " the trade...corrected confirms, etc.
Anyway, a bit long, but I thought it was an excellent question, deserving of a detailed response since most dont have this kind of experience.
oh, btw, i stopped using the **astericks a long time ago...<G>
Regards,
Steve@yamner.com |
