NYSE Front-Running needs to be addressed

Quote from Don Bright:

"Normal" supply and demand is never the problem...it is the "abnormal" days/times where all the havoc is created. This is when we need some type of "fair and orderly" markets. IMO.

Don
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I'm sick of this NYSE propaganda. Don needs to find another edge and let the specialist die.

Specialists love panic sell offs. They simply wait for support or for selling to weaken, then they step in and buy. With their information, they KNOW where buying demand is. So... if there is buying demand at the levels he's leaning on, what do we need a specialist for?

On a whim I thought I'd take a quick look at Oct 19, 1987. Surely the advantages of the specialist system will be clear in the "abnormal" havoc on that day. Below are the highs, lows and % drops for some indices and stocks (picked out of thin air):

SP 500 282.70 224.83 = 20.5%
DJIA 2164.16 1677.55 = 22.5%

Roughly 22% drop that day overall.... How'd Nasdaq do?

Nasdaq 404.80 360.20 = 11%
MSFT .441 .313 = 29%
INTC 1.063 .870 = 18.2%

Only 11% drop on the Nasdaq? Not too bad. Individual stocks appear roughly the same though. How were things on the NYSE?
(Couldn't find data on NYSE Composite)

IBM 34.50 25.00 = 38%
GE 4.17 3.22 = 22.8%

Wow. 38% for IBM. And even GE did worse than the overall market.

So please show me where the specialist was beneficial in this "abnormal" havoc situation. MSFT and INTC seemed to find plenty of buyers without the specialist. Arguably holding up better than stocks on the NYSE.
 
Interesting #'s, Firewalker. I totally agree. The Specialists LOVE sell-offs....that is where their bread is buttered. Normal trend days are nickel & dime stuff (relatively speaking), but the sell-offs are Mardi Gras season for the Specialist. They step in when the buyers dry up, and set THEIR price. What a great system, eh ??
 
Quote from hayman:

Regardless of whether the market tanks or there is a big selloff in the stock, the buyers out there will get filled first in that scenario. When the buyers are all dried up, the Specialist takes over. At that point, he can set the price he wants,
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The specialist is not free to set any price he wants, there exist detailed rules based on the specific characteristics of the stock in question (price level, avg. liquidity, and volatility) as to how much price is allowed to jump between prints and the minimum size the specialist is required to execute at each level.
and he can "legally" undershoot the fair market price at the time.
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How can the "fair" market price deviate from where the specialist is willing to execute if he is the only buyer left at that point in time?
This mitigates his risk substantially, since he can subsequently drive the price back to its "market" value after he/she pruchases, and sell for a profit.
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The specialist cannot just "drive the price back up". For price to move back up either buyers must step in and pay up (which the specialist cannot do himself as he's not allowed to initiate) or the sell side needs to have been cleaned out on the last print such that there's a temporary vacuum of supply above the current price level. If marketable orders keep flowing in there won't be any bounce as much as the specialist may want one to happen.

As for "market value", in a free market driven solely by supply and demand the fair market value is always determined by whatever price buyers and sellers can agree to at any one point in time. As such the fiar market value cannot deviate from the current price; it always is the current price.


I've had lengthy discussions with a Specialist acquaintance, and he told me off the record, that this is their most prevalent oppty for profit. The biggest oppty for profit is the major Bad News before the bell scenario. Here, they know apriori the supply/demand imbalance, and can be the last resort buyer at a very favorable price to them. Glad to see that the Specialists are making money at your and my expense.
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There's absolutely no reason why the specialist should be making money at your expense in that situation. Quite to the contrary, that is actually a unique opportunity for you to participate and make sure that you get the exact same entry price as the specialist and to make just as much on the trade. You just have to make sure to have your MOO order in in time.
 
dlincke,

With all due respect, I think you are confusing textbook rules with reality. This stuff happens all the time, and the "regulatory" agencies have always turned their cheeks and ignored these "deviations". Today's token fining of several prominent Specialist firms, is the beginning of some serious inquiry to the practices of these Specialist firms.
 
I tend to do a lot of my own trading in very thin stocks, and I must say that I get fucked over a lot more on the nasdaq then I do on the nyse or amex. I tend to like the specialist system myself better then the nasdaq, but im a hick too and we dont like change :D

Brandon
 
Quote from FireWalker:

I'm sick of this NYSE propaganda. Don needs to find another edge and let the specialist die.

Specialists love panic sell offs. They simply wait for support or for selling to weaken, then they step in and buy. With their information, they KNOW where buying demand is. So... if there is buying demand at the levels he's leaning on, what do we need a specialist for?

On a whim I thought I'd take a quick look at Oct 19, 1987. Surely the advantages of the specialist system will be clear in the "abnormal" havoc on that day. Below are the highs, lows and % drops for some indices and stocks (picked out of thin air):

SP 500 282.70 224.83 = 20.5%
DJIA 2164.16 1677.55 = 22.5%

Roughly 22% drop that day overall.... How'd Nasdaq do?

Nasdaq 404.80 360.20 = 11%
MSFT .441 .313 = 29%
INTC 1.063 .870 = 18.2%

Only 11% drop on the Nasdaq? Not too bad. Individual stocks appear roughly the same though. How were things on the NYSE?
(Couldn't find data on NYSE Composite)

IBM 34.50 25.00 = 38%
GE 4.17 3.22 = 22.8%

Wow. 38% for IBM. And even GE did worse than the overall market.

So please show me where the specialist was beneficial in this "abnormal" havoc situation. MSFT and INTC seemed to find plenty of buyers without the specialist. Arguably holding up better than stocks on the NYSE.
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With all due respect, this is hardly a comprehensive or scientific study. The studies that do exist show that people get better prices on the NYSE, and people know that spreads are typically smaller on the NYSE.
 
Quote from hayman:

dlincke,

With all due respect, I think you are confusing textbook rules with reality. This stuff happens all the time, and the "regulatory" agencies have always turned their cheeks and ignored these "deviations". Today's token fining of several prominent Specialist firms, is the beginning of some serious inquiry to the practices of these Specialist firms.
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It's not only the fines, if the specialist is doing an unfair job he can also be fired due to complaints (albeit not necessarily from daytrader complaints).
 
Quote from Brandonf:

I tend to do a lot of my own trading in very thin stocks, and I must say that I get fucked over a lot more on the nasdaq then I do on the nyse or amex. I tend to like the specialist system myself better then the nasdaq, but im a hick too and we dont like change :D

Brandon
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Exactly the point!!
 
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