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Observations on the NYSE specialist.
- Thread starter oliver777
- Start date
I believe that our former specialist has already stated that price-time priority governs within the book, and that booked long sells cannot jump in front of booked same-priced short sells, during those times that the short sells are not blocked by the uptick rule.
If, as I believe cstu said, a floor broker can sometimes use size priority to jump in front of the book, and if this is what happened to Dan's booked order, then the other order Dan saw on the book was not the selling interest which jumped in front of him. He merely assumed it was.
The specialist's book is part of the process at the NYSE, but it is not the entire process.
If, as I believe cstu said, a floor broker can sometimes use size priority to jump in front of the book, and if this is what happened to Dan's booked order, then the other order Dan saw on the book was not the selling interest which jumped in front of him. He merely assumed it was.
The specialist's book is part of the process at the NYSE, but it is not the entire process.
Quote from jimrockford:
NYSE deceptively baits traders and smart-router software to route SPY orders to NYSE. NYSE does this by falsely displaying the best price in a trending market. But then NYSE, on average, gives a much worse price than the one it displayed. The average difference is so great, that one would be far better off simply excluding NYSE from routing decisions for SPY orders. I speak from experience and careful study and analysis.
More Rockford lies and false charges.
I suppose there was a specialist on the grassy knoll too.
Quote from Hamlet:
...Most of you guys wanted penny increments before they came to be. You got what you wanted and this is why experienced people like Mr. Bright keep repeating to be careful what you wish for when it comes to wanting other changes which will also increase efficiency. The result has been less liquidity, more noise and lower profits for traders....
I don't know a single trader who wanted penny increments. Why would a trader want penny increments? If I recall correctly wasn't it more like the mutual funds and the SEC?
Quote from kowboy:
I don't know a single trader who wanted penny increments. Why would a trader want penny increments? If I recall correctly wasn't it more like the mutual funds and the SEC?
You're absolutely right, traders, in the true sense of the word (none that I knew either, anyway), did not want penny increments. By that I mean that good traders recognize that they need liquidity, some inefficiency, and a decent tick size to make make decent profits.
When I said "most of you guys", I was referring to the many on these boards who just do not understand any of that. It are these same "traders" who think the markets should be totally efficient and whine for things like full electronic markets, complete elimination of uptick rules, etc.
Thanks for helping me make my point.
Fifteen NYSE Specialists Indicted
By Matthew Goldstein
Senior Writer
4/12/2005 1:10 PM EDT
Updated from 8:39 a.m. EDT
Fifteen current and former specialists on the New York Stock Exchange were indicted on criminal charges that they abused their position as stock-trading middlemen to fleece unsuspecting clients.
The charges stem from a two-year investigation of the major specialist firms that drive trading in Big Board stocks and resulted in seven specialist firms paying $247 million in fines last year to the Securities and Exchange Commission
http://www.thestreet.com/_forbes/stocks/brokerages/10217061.html?cm_ven=FORBES&cm_cat=FREE&cm_ite=NA
By Matthew Goldstein
Senior Writer
4/12/2005 1:10 PM EDT
Updated from 8:39 a.m. EDT
Fifteen current and former specialists on the New York Stock Exchange were indicted on criminal charges that they abused their position as stock-trading middlemen to fleece unsuspecting clients.
The charges stem from a two-year investigation of the major specialist firms that drive trading in Big Board stocks and resulted in seven specialist firms paying $247 million in fines last year to the Securities and Exchange Commission
http://www.thestreet.com/_forbes/stocks/brokerages/10217061.html?cm_ven=FORBES&cm_cat=FREE&cm_ite=NA
Here is another expert who states that NYSE allows floor brokers to override price-time priority. He is Marshall E. Blume, Howard Butcher III Professor of Financial Management at the Wharton School of the University of Pennsylvania, in his comments to the SEC at http://www.sec.gov/rules/sro/ny9948/blume1.htm
Trading on the NYSE does not always conform to strict price-time priority. This can occur when there is a clean cross, for instance. It can also occur when a floor trader with a newly arrived order trades in front of and at the same price as a previously submitted limit order. This possibility results from the NYSE rules for determining standing within the crowd.
Nonetheless, the NYSE does preserve strict price-time priority within the limit-order queue itself.
Professor Marshall E. Blume writes at http://64.233.179.104/search?q=cach...ty&hl=en&gl=us&ct=clnk&cd=13&client=firefox-a:
trading on the NYSE itself does not always conform to price-time priority across all trades, even though time
priority within the limit order book itself is maintained. As one example, a clean cross could take place at the price of a previously submitted limit order. As another example,
the trading rules of the NYSE sometimes permit a floor trader with a newly arrived order
to trade in front of a previously submitted limit order. The latter example does not
necessarily expose the NYSE to criticism. Trading practices on the NYSE are complex.
Floor traders have certain advantages over those off the Exchange, and one of these is
that they can sometimes trade ahead of previously submitted limit orders.
Another expert, Joel Hasbrouck, Kenneth G. Langone Professor of Business Administration
and Professor of Finance,
Department of Finance,
Stern School of Business,
New York University, in "US Equity Markets: Overview and Recent History", explains that when NYSE floor traders jump in front of public customer orders which arrived earlier but at the same price, they usually do so not by invoking NYSE size priority rules, but by taking advantage of NYSE rules which put the floor brokers on "parity" with the limit order book, thereby negating the protection of price-time priority.
http://64.233.179.104/search?q=cach...ty&hl=en&gl=us&ct=clnk&cd=17&client=firefox-a
and Professor of Finance,
Department of Finance,
Stern School of Business,
New York University, in "US Equity Markets: Overview and Recent History", explains that when NYSE floor traders jump in front of public customer orders which arrived earlier but at the same price, they usually do so not by invoking NYSE size priority rules, but by taking advantage of NYSE rules which put the floor brokers on "parity" with the limit order book, thereby negating the protection of price-time priority.
4.3 The limit order book
The book is maintained by the specialist. When there were multiple specialists, each specialist
could have his own limit order book. Now there is a single electronic book.
In acting as agent for limit order book, the specialist in a sense becomes the book, representing it
as if it were a single floor trader. An important implication of this is that although price/time
priority is strictly observed within the book, the book as a single entity might be at parity with
floor traders that arrived considerably after the limit orders in the book were posted.
http://64.233.179.104/search?q=cach...ty&hl=en&gl=us&ct=clnk&cd=17&client=firefox-a
Jim
Have been gone today but your last snippet is pretty good and telling. It really is not worth my time to try to expalin somewhat arcane rules to those that don't want to listen. I think you have a handle on the long/short debate.
Treat the specialist and his order book as one trading entity at one specific limit price. Also treat each representative in the crowd, with orders at the given limit as one discrete entity. This is where you get the term "match". Multiple entities at one specific limit price making sales. Each is entitled to the given percentage provided they are on "parity". "parity" really means they are entitled to match a sale provided they were at the post for a prior sale ie... this sale puts them on parity with everyone else at that price. The specialist can never match between orders entrusted to them because they have to go strictly by time priority.
Now often the parity rule is not enforced. The only time I ever ever ever enforced it was when somebody wanted to "cross" stock at a specific limit price shutting out the book. I think this is where the "size" priority comes from. Esentially a broker, provided they are on parity can cross stock (have their own buyer and seller) and shut out the specialist as long as their full order they are executing is greater than the sum total of specialist orders at the given limit.
Again, the only reason I would enforce parity would be because a big print is about to go up, my book is doing squat, every order on my book is gonna think they have a fill and ask questions, so I am not going to cut a corner. The way a floor broker goes on parity let say my market is 29.95 for 5M and 50M at 30. The floor broker wants to cross 100M at 30. The parity rule requires that he be there for a sale. So he creates his own sale by buying 100 share then crossing his 100M.
There is a lot of misinformation going around. It seems much is coming from the brokers we deal with. I certainly get bogus answers from my discount brokers. Of course, with the way people on this board trade (not knowing the rules) and then they don't listen to explanations. it may be useless to give them the real reason so the reason is "the book was shut out"
Now someone was complaining about the close and shorts on the close. He said they are "big" prints so I assume it is on some sort of "Published order imbalance days". Let us assume that there is a market on close buy imbalance of 50M. then let us assume 49500 comes in to sell MOC. You now are paired off basically so the book is only doing 500 shares. The paired off stock is also printed as stopped stock so it would be 500 and then 49500 on stop. My time and sales info never shows the second paired print as stopped, not sure what other vendors have. I might add that my example is a little extreme as generally the book will be selling a lot more stock on these "pairoffs". I will also note that a MOC short has time priority only over other MOC shorts. All other orders at the uptick that will be the final sale have priority because the MOC only can be handled on the final sale.
We are covering a lot here and I would be happy to handle any questions in private IM or here if we can have a respectful conversation.
Have been gone today but your last snippet is pretty good and telling. It really is not worth my time to try to expalin somewhat arcane rules to those that don't want to listen. I think you have a handle on the long/short debate.
Treat the specialist and his order book as one trading entity at one specific limit price. Also treat each representative in the crowd, with orders at the given limit as one discrete entity. This is where you get the term "match". Multiple entities at one specific limit price making sales. Each is entitled to the given percentage provided they are on "parity". "parity" really means they are entitled to match a sale provided they were at the post for a prior sale ie... this sale puts them on parity with everyone else at that price. The specialist can never match between orders entrusted to them because they have to go strictly by time priority.
Now often the parity rule is not enforced. The only time I ever ever ever enforced it was when somebody wanted to "cross" stock at a specific limit price shutting out the book. I think this is where the "size" priority comes from. Esentially a broker, provided they are on parity can cross stock (have their own buyer and seller) and shut out the specialist as long as their full order they are executing is greater than the sum total of specialist orders at the given limit.
Again, the only reason I would enforce parity would be because a big print is about to go up, my book is doing squat, every order on my book is gonna think they have a fill and ask questions, so I am not going to cut a corner. The way a floor broker goes on parity let say my market is 29.95 for 5M and 50M at 30. The floor broker wants to cross 100M at 30. The parity rule requires that he be there for a sale. So he creates his own sale by buying 100 share then crossing his 100M.
There is a lot of misinformation going around. It seems much is coming from the brokers we deal with. I certainly get bogus answers from my discount brokers. Of course, with the way people on this board trade (not knowing the rules) and then they don't listen to explanations. it may be useless to give them the real reason so the reason is "the book was shut out"
Now someone was complaining about the close and shorts on the close. He said they are "big" prints so I assume it is on some sort of "Published order imbalance days". Let us assume that there is a market on close buy imbalance of 50M. then let us assume 49500 comes in to sell MOC. You now are paired off basically so the book is only doing 500 shares. The paired off stock is also printed as stopped stock so it would be 500 and then 49500 on stop. My time and sales info never shows the second paired print as stopped, not sure what other vendors have. I might add that my example is a little extreme as generally the book will be selling a lot more stock on these "pairoffs". I will also note that a MOC short has time priority only over other MOC shorts. All other orders at the uptick that will be the final sale have priority because the MOC only can be handled on the final sale.
We are covering a lot here and I would be happy to handle any questions in private IM or here if we can have a respectful conversation.