NYSE-ARCA Merger

Don Bright · Dec 1, 2005

What some of you may be overlooking is the fact that when and if the market becomes truly "fair" - there will be no market, and no reason for traders...be careful what you wish for.

As long as there is risk, there can be reward....and there will be a marketplace...when everything is priced fairly and anyone can access the same markets and pricing, then we can all retire. As for me, I doubt this will happen soon.

It has been fun watching all the changes over the last 30 years, and with each major change, the naysayers have predicted the end of trading as we know it...well, it hasn't happened yet.

FWIW,

Don

eusdaiki · Dec 1, 2005

Quote from Don Bright:

What some of you may be overlooking is the fact that when and if the market becomes truly "fair" - there will be no market, and no reason for traders...be careful what you wish for.

As long as there is risk, there can be reward....and there will be a marketplace...when everything is priced fairly and anyone can access the same markets and pricing, then we can all retire. As for me, I doubt this will happen soon.

It has been fun watching all the changes over the last 30 years, and with each major change, the naysayers have predicted the end of trading as we know it...well, it hasn't happened yet.

FWIW,

Don

Good point Don. Instead of complaining about unfair situations at the market, one should look for ways to get a profit out of it. Because it's in the ineficiencies that we find money just liying around wating to be taken.... in a perfectly efficient market, there's no money to be taken at chance, there's no bussiness for traders.

cstu · Dec 1, 2005

I agree. Good point Don. You all have certainly adjusted well over the years. It seems to me that the price improvement is necessary in order to get me to put a order on the book which creates liquidity. Why would I ever have an order on the book if the stock can be walked up penny by penny?

Szeven · Dec 2, 2005

I dont believe that i am a 'naysayer' that is predicting the end of trading, because obviuosly im way too new to say anything profound like that, but i dont see anything wrong with expecting certain underlying pricinples of market parameters to be held up during this merger.

I maintain strongly that first come first serve is something that just makes sense. Even splitting with the floor brokers is ok, but i guess im worried that some stocks will just have 10 times the volume stacked on the level 2 in order to get the actual number of shares you want just by splitting with others.

I understand that things will change and i will have to adapt, and look forward to new oppourtunities presenting themselves, but the things i metioned dont seem unreasonable in my opinion.

I guess i am the only person who things selective price improvement is dumb, who knows.

howardy2k · Dec 2, 2005

how do they determine the split on orders being filled? how many shares do each get? does it depend on how the specialist is feeling that day? talk about handing over a blank check :mad:

Don Bright · Dec 2, 2005

Quote from howardy2k:

how do they determine the split on orders being filled? how many shares do each get? does it depend on how the specialist is feeling that day? talk about handing over a blank check

It's very important, in my opinion, that traders understand all this before they start trading very much. In general (things change, and there are exceptions)...you can count on:

1. Time priority.
2. Once you have received any part of your order (say 100 of 500) then you may be "on parity" with other orders with the same price limit. Getting the 100 shares is like the "kiss of death" sometimes, and I usually just cancel the rest, adjust the price limit and go on trading.
3. Size priority. If your order cannot fill the matching (opposite side) order, and another order can, it is possible to be "sized out" - this is very rare, but does happen at times.
4. Long market, long limit, short market, short limit. If you are selling short 1,000 shares at 39.01, and there are 10,000 other people with orders at the same price, you may not be filled since you're last in line...but if they trade through your price, you will be filled.
5. Matching orders. Your order may be matched by the Specialist, and/or, he may share your order with another broker for fairness.

There is a lot more, and the more you know, the less likely you'll be overly concerned about the trading practices.

Remember this: The Specialist cannot initiate an uptick, cannot initiate a downtick, and can only "participate" in an order, he cannot take the order. He can improve price (and does on about 30% or more of my orders), and he can (and does) negotiate pricing for larger orders, and must give all the "scooped up" orders the better price....which is imperative.

Anyway, IMO, no real "right" or "wrong" - it is what is, and I think it's still the best system, and I think the Arca deal will make it even better. Kind of like the good ol' USA, not perfect, but the best there is.

All the best,

Don

cstu · Dec 2, 2005

Good recap Don. It is important to me that orders on the book be given the chance at price improvement when a print goes on the tape. Also, if the book is not getting price improvement you will have a real wild west show if the specialist can pick the ultimate price to fill an order and be the only person to get this best price.

In regard to "parity" in Don's explanation:It may be easier to explain by saying that all brokers representing orders have parity rather than all orders. For example, if four brokers and the specialist (acting as agent) are splitting stock at a certain price (on parity). Not all the specialist orders are participating, they are still executing based on time. The book (in time priority) is on parity with the crowd not each individual order on the book. Small point but can show why people can be "shut out" on some prints.

Don Bright · Dec 2, 2005

Quote from cstu:

Good recap Don. It is important to me that orders on the book be given the chance at price improvement when a print goes on the tape. Also, if the book is not getting price improvement you will have a real wild west show if the specialist can pick the ultimate price to fill an order and be the only person to get this best price.

In regard to "parity" in Don's explanation:It may be easier to explain by saying that all brokers representing orders have parity rather than all orders. For example, if four brokers and the specialist (acting as agent) are splitting stock at a certain price (on parity). Not all the specialist orders are participating, they are still executing based on time. The book (in time priority) is on parity with the crowd not each individual order on the book. Small point but can show why people can be "shut out" on some prints.

Good clarification, thanks!

It's funny (at least to me) how upset traders tend to get at times simply because they are unaware of how the rules work. By the second week of boot camp (for new guys) I try to show as many examples as possible, and explain the "why" to all this...it keeps them from freaking out because they think they were "entitled" - and when a trader gets "mental" (even for a short time), they make mistakes.

When they know how the game is played, everything seems to run smoothly....not to say that sometimes I might mutter something under my breath, LOL.

Actually, this morning I was taking a layer of the ANN/CHS pair off, so I sold the ANN when I saw CHS drop the quote to 44.25 x 44.40 (last trade 44.40)....so I put my bid in at 44.29 (rushing it), and 30 seconds later he prints big at 44.30, then back to 44.40.. I know better, I should have used the round number....Oh well.

I ended up trying to pay 44.39, and he gave me 44.33 price improvement in the end anyway, :-)

Don

ig0r · Dec 2, 2005

Is no one else concerned with the fact that now we have to deal with partials on NYSE? This doesn't really concern people trading 200 shares at a time, but it will certainly be a pain in the ass when I'm trying to get filled on 5000

RNRBAND · Dec 2, 2005

does anyone see any major changes needed to our software
beyond a few new keys? it should be interesting to see which firms go out of their way to prepare its guys for the changes.
so far I havent heard a word from either of my brokers.