NYSE Execution -- Interview w/ John Wheeler

[chasinfla]

I've posted stuff by another American Century guy...maybe it was this one, I don't know... it was good stuff, and he has a lot to say about clearing rates as well as executions.

They were backers of ARCA but I guess that hasn't exactly taken off...

We had price improvement when we were trading in eighths. We had price improvement when we were trading in sixteenths. Only now, when we are trading in pennies, do people get all wound up over price improvement. The day electronically delivered order flow exceeded manually entered order flow, price improvement should have gone the way of the buggy whip and the horse drawn carriage. It just doesn't serve investors interests' in today's high tech environment. Price improvement allows a NYSE member (floor broker or specialist) to trade ahead of legitimate public orders by "improving" the trade by one pricing increment. Decimal pricing simply lowers the cost of this nefarious behavior for NYSE members from 1/16 of a point to a penny - it doesn't make it any more "right."

I couldn't agree more.

When an investor sees a 5,000 share offering of a $20 stock on his/her home PC they should be able to send a DOT order to the floor and buy that stock. However, the NYSE allows any of it's members to see that this $20 trade is about to occur and they can take that stock away from the investor by paying $20.01. Now the buyer's unfilled order becomes the new $20 bid and the stock is re-offered at $20.10. This happens over and over again until the investor is willing to pay a price that no NYSE member is willing to pay and they are "allowed" to buy their stock. The NYSE will say that the seller was price improved, we say the buyer was front run. Price Improvement = Front Running.

<i>emphasis added</i>

Don't <i>even</i> get me started on this. This is why I haven't traded share on the NYSE since late March.