Observations on the NYSE specialist.

[Hamlet]

This example that you posted clearly shows that you are wrong.

NYSE Rule 72 contains this description of the matching process, in Examples VI. and VII., as follows:



--------------------------------------------------------------------------------
VI.

Bids

A—100

B—400} Bid
C—400} simultaneously

D—300

E—200


Offers

F-700

A receives 100 under paragraph I(a). Under paragraph I(e), B and C are on a parity and under paragraph I(d) have precedence because of largest number of shares. B and C match for 400 and the remaining 200 goes to the one who lost the match.


As you can see, A takes time priority over B and C which are on parity.


Do you not see that your contention and the advice given to Dan was wrong? It is plain to everyone else.

 

[jimrockford]

OK, cstu,

Thanks. I think this is very educational.

Let me preface my question by reproducing the first few paragraphs of NYSE Rule 72, governing the priority and precedence of entities in the NYSE auction process (of which the price-time priority specialist's book is only one component).

Rule 72. Priority and Precedence of Bids and Offers

I. Bids.—Where bids are made at the same price, the priority and precedence shall be determined as follows:

Priority of first bid

(a) Except as provided in paragraph (b) below, when a bid is clearly established as the first made at a particular price, the maker shall be entitled to priority and shall have precedence on the next sale at that price, up to the number of shares of stock or principal amount of bonds specified in the bid, irrespective of the number of shares of stock or principal amount of bonds specified in such bid.

Priority of Agency Cross Transactions

(b) When a member has an order to buy and an order to sell an equivalent amount of the same security, and both orders are of 25,000 shares or more and are for the accounts of persons who are not members or member organizations, the member may "cross" those orders at a price at or within the prevailing quotation. The member's bid or offer shall be entitled to priority at such cross price, irrespective of pre-existing bids or offers at that price. The member shall follow the crossing procedures of Rule 76, and another member may trade with either the bid or offer side of the cross transaction only to provide a price which is better than the cross price as to all or part of such bid or offer. A member who is providing a better price to one side of the cross transaction must trade with all other market interest having priority at that price before trading with any part of the cross transaction. Following a transaction at the improved price, the member with the agency cross transaction shall follow the crossing procedures of Rule 76 and complete the balance of the cross. No member may break up the proposed cross transaction, in whole or in part, at the cross price. No specialist may effect a proprietary transaction to provide price improvement to one side or the other of a cross transaction effected pursuant to this paragraph. A transaction effected at the cross price in reliance on this paragraph shall be printed as "stopped stock".

When a member effects a transaction under the provisions of this paragraph, the member shall, as soon as practicable after the trade is completed, complete such documentation of the trade as the Exchange may from time to time require.

Example 1

Assume the market in XYZ is quoted 20 to 20.01, 40,000 shares by 30,000 shares. A member intending to effect a 25,000 share "agency cross" transaction at a price of 20 must bid 20 for 25,000 shares and offer 25,000 shares at 20.01. The member's bid at 20 has priority, and the proposed cross could not be broken up at that price. The proposed cross could however, be broken up at 20.01, as this would provide a better price to the seller. However, a member intending to trade with the offer side of the cross would first have to take the entire 30,000 share offer at 20.01 which was entitled to priority, before trading with any part of the offer side of the cross.

Example 2

Assume the market in XYZ is quoted 20 to 20.35, 20,000 shares by 20,000 shares. A member intending to effect a 25,000 share "agency cross" transaction at a price of 20.05 must follow the crossing procedures of Rule 76 and bid 20.05 for 25,000 shares and offer 25,000 shares at 20.06. The member's bid at 20.05 has priority, and the proposed cross could not be broken up at this price. The proposed cross could, however, be broken up, in whole or in part, at 20.06, as this would provide a better price to the seller.

Precedence of bids equaling or exceeding amount offered

(c)(P) When no bid is entitled to priority under paragraph (a) hereof, (or when a bid entitled to priority or precedence has been filled and a balance of the offer remains unfilled), all bids for a number of shares of stock or principal amount of bonds equaling or exceeding the number of shares of stock or principal amount of bonds in the offer or balance, shall be on parity and entitled to precedence over bids for less than the number of shares of stock or principal amount of bonds in such offer or balance, subject to the condition that, with respect to bids made as part of the auction market if it is possible to determine clearly the order of time in which the bids so entitled to precedence were made, such bids shall be filled in that order except that no bids in Floor broker agency interest files or specialist interest files shall be entitled to precedence.

It seems that paragraph I.(a) gives time priority to the first bid made at a particular price, but that once it is filled, the other bids competing at that price do not recieve such a time priority. Your own description seems to be that the remaining bids would, generally, in most cases, be on parity, so that they would share equally in the remaining contra liquidity.

It seems that paragraph I.(b) covers the case you discussed, in regard to a cross trade enabling a floor broker to jump in front of the specialist's price-time priority order book.

I am interested in your explanation of paragraph I.(c). This paragraph seems to provide a situation in which a floor broker can jump in front of the specialist's price-time priority order book, even though the floor broker is bidding much later than the time at which competing orders arrived in the specialist's order book, and even though no cross trade is involved. This paragraph seems to allow such jumping in front of the specialist book, where the first bid at the same price has already been filled, the floor broker jumping in front bids greater size than the amount of stock on the offer, and the specialist is bidding for less size than the amount of stock on the offer.

Would you care to clarify paragraph I.(c) for us? Is it one of those NYSE rules that exist on the books but are not followed in practice?

 

[Hamlet]

Quote from jimrockford:


It seems that paragraph I.(a) gives time priority to the first bid made at a particular price, but that once it is filled, the other bids competing at that price do not receive such a time priority. Your own description seems to be that the remaining bids would, generally, in most cases, be on parity, so that they would share equally in the remaining contra liquidity.

Congratulations, Rockford. You are finally seeing the light.


It is a shame that it took so many pages of going back and forth with you for you to understand a very simple concept.

I do know that it seems you feel that one needs to be a lawyer to trade NYSE, as we concluded from this post:

Quote from jimrockford:

Good points, Avid Consumer. The issues you mention are part of the reason I stopped trading with specialists. I agree 100% that traders should not have to be lawyers or regulatory experts.

I sincerely hope that you see now that if you put your ego aside things become much clearer.

I suggest that now we begin to address your conspiracy ideas based on charges that you made such as this one:

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.

or this one:

Quote from jimrockford:

My view is that many NYSE customers have a sophisticated liquidity providing strategy which allows them to benefit from NYSE, at the expense of other NYSE customers who take liquidity. This provides them an incentive to defend NYSE and to deny the existence of its blatant criminality.


The NYSE order-matching process systematically victimizes those who seek liquidity. It also systematically victimizes some customers who provide liquidity, but only those who are unsophisticated. The NYSE systematically shares some of the resulting loot with customers who have a sophisticated strategy for providing liquidity. It is therefore in the financial best interest of such sophisticated, liquidity-providing NYSE customers, to defend whatever NYSE does, to deny the obvious NYSE criminality, and to shift the blame onto innocent victims and others.

I believe that would be as or even more constructive to readers of this thread as was your education process on order priority (I hope that we can now lay that part to rest, finally).

 

[jimrockford]

Quote from jimrockford:

All readers please be advised that Hamlet has engaged in a longstanding pattern of harassing me by falsely claiming that I made statements which I did not make, or by falsely altering my statements in order to change them into statements I did not make. He has, for example, continued to attribute some of the same false statements to me, even after I have already denied making them. I don't want to waste any more time going into specific denials of each specific statement he falsely attributes to me, so I will just post this general warning that all should disregard Hamlet's false descriptions of my statements.

 

[Hamlet]

Quote from jimrockford:

Quote from jimrockford:

All readers please be advised that Hamlet has engaged in a longstanding pattern of harassing me by falsely claiming that I made statements which I did not make, or by falsely altering my statements in order to change them into statements I did not make. He has, for example, continued to attribute some of the same false statements to me, even after I have already denied making them. I don't want to waste any more time going into specific denials of each specific statement he falsely attributes to me, so I will just post this general warning that all should disregard Hamlet's false descriptions of my statements.



All readers please know that I WELCOME the opportunity to specifically answer to any of the above accusations by Rockford.

Notice that his accusations are all GENERAL, and that he speaks not directly to me, because he knows that he cannot make a single specific accusation that I cannot debunk. Everything is well documented here.

 

[Hamlet]

Please also note that MR. Bright invited Rockford into a moderated discussion, related to Rockford's charges, criminal and otherise, against the NYSE and it's specialists. Of course Rockford backed away from that, or otherwise dropped the ball on it. I also would welcome the opportunity to be a part of that discussion.

 

[jimrockford]

Quote from Don Bright:

Well, since you have decided to point out my "errors" I would like to invite you to an online chat session to discuss in detail your comments.

1. If you think about it, what difference does it make to Bright Trading what type of execution you use...we make money no matter what, right?

We do better when our traders make money, stay with us for a lifetime, and continue to prosper, make sense to you? That is the only reason for our trading about 90/10 NYSE at this point in time. Openings still account for about 25% of all BTraders profits, and the blue chips make for great pairs trading.

2. I didn't say IB "does" trade against you, simply that retail brokers can (and many do). I respect Timber Hill and IB, and they are the only retail firm I have ever recommended to retail traders.

3. Please provide documentation that IB can smart route to GS private liquidity pool, that would be something I would really be surprised to see if it is true. Especially since this is brand new even for us.

You keep using the words "cheat" and "steal" - now, one must ask, why do you think the financial world would participate in this den of inequity? It's a market place that has provided liquidity for centuries, nothing more, nothing less.

You realize, of course, that our traders can use any technology available....and it really doesn't matter since their "edge" is the ability to take part in strategies that most traders cannot...those that are "capital intensive" - (again, openings, pairs, M&A, etc.). Their success has little or nothing to do with how the orders are executed...if we run across a "bad" specialist, we simply change stocks (very rare, but it does happen).

I really don't see any reason for all the hostility, we all just want to "play the game" and make some money and, as in all business ventures, take responsibility for' our own actions (especially necessary in the trading business).

So, if you want to hash it out on a public forum, I'm glad to...and who knows, perhaps others could learn from an adult discussion about such matters...... perhaps Baron could put it together....if not, no big deal, I'm not trying to "win" the argument.....simply to discuss how we feel about things....

All the best,

Don

Don,

I'm sure you can see that I am being systematically harassed by personal attacks on this thread. This harassment started before my last posting directed to you. The harassment I have been suffering was the source of hostility which I regret directing toward you, and for which I apologize. I saw your inaccurate statements as aiding and abetting the harassment, and so I did not do a good job of separating you from the individuals who were harassing me. I hope this answers your question as to the source of the hostility. I'm not claiming to have an excuse for my hostility, I am only trying to answer your question about its source. It is, of course, clear that you did not harass me, and I think it is obvious that you have way too much class to harass people.

I would have preferred responding to you much sooner, but I have been greatly distracted by the harassment, which has consumed much of the limited time I can afford to devote to this discussion thread. I am ridiculed for spending too much time on this thread, and then also, by the very same people, for failing to respond to specific matters.

I would also like to add that despite our disagreements, I believe you add a great deal to EliteTrader, not just as an advertiser, but also in terms of the substance of its discussions. I regret any role I may have played in discouraging your continuing participation in this thread.

I am concerned, however, about the wording of your posting, because it doesn't seem to acknowledge that your statements about IB were incorrect. You made incorrect statements about IB failing to disclose trades against customers, selling equity order flow, internally matching customer equity orders, and failing to provide access to Goldman Sachs equity liquidity. I think it would be a good idea for you to acknowledge your errors. I don't think you want it to appear that you are unfairly knocking your competitors.

It also seems to me that you did inaccurately state that IB, specifically, was trading against customers and representing those trades as NYSE trades, when in fact those trades did not execute at NYSE, and that this might be why I received delayed fills and poor fill prices.

Quote from Don Bright:

Retail orders are routed to the brokerage firm (IB in your case) by regulation, and therefore may not even make it directly to the NYSE (although it may show on your sheets that it traded there, it may have been simply "put on the tape" there)...your T&S will show NYSE, but it also may show "as of" - many variables involved in retail trading. You're right that you may get better executions on an ECN in this case.

Don

I can't reconcile this with your later statement that you never said IB trades against customers. IB, through its Timber Hill affiliate, does actually trade against its customers, but it does so with various protections, including full disclosure that the trade was executed by Timber Hill and not by NYSE.

I can answer your request for documentation as follows. You can request documentation from either Goldman Sachs, or from Nasdaq, that Goldman Sachs is a registered Nasdaq market-maker, providing, through Nasdaq's SuperIntermarket facility, liquidity for NYSE and AMEX issues. Here is a link showing that Goldman Sachs participates: http://www.nasdaqtrader.com/trader/hottopics/currentlp.pdf

The next piece of documentation you will need is something from Interactive Brokers, showing that IB does provide both direct-routed and SMART-routed access to a list of market centers, including Nasdaq, for NYSE and AMEX issues. You would need to request such documentation from IB, because I don't know where to find clear documentation of this fact, but I do have first-hand knowledge that it is true. I, while trading through IB, have personally had numerous orders for NYSE-traded issues SMART-routed to Nasdaq's SuperIntermarket.

I think that NYSE has succeeded in cheating and stealing, in recent years, because of outdated government-enforced laws and rules, like the present trade-thru rule, which give NYSE an unfair advantage over competitors. The trade-thru rule, for example, greatly interferes with other market centers in their executions of NYSE and AMEX traded issues. I think that Regulation NMS, the new trade-thru rule, will be a step forward in this regard. Regulation NMS is not yet even in effect, but it is already forcing positive changes on NYSE. I don't think it was a coincidence that NYSE made a deal with ARCA immediately after Regulation NMS was approved by the SEC.

I'm not sure I understand the purpose of your suggesting an online chat session. Why would that be superior to continuing our discussion in this thread, and including others as well? I don't consider myself an expert, and I fear that without being able to take my time in my responses during a chat, my participation may have little value or substance. Perhaps you were referring to the goal of excluding disruptive and abusive behaviour from a discussion. If we agree that this would be desirable, then I would ask that you work with me to complain to Baron about the outrageous abuse we have seen in this thread. I think that our joint complaint would carry far more weight than just my own, and that it would probably be successful and enable us to continue this highly educational thread, free of interference.

 

[Hamlet]

Quote from jimrockford:

I would ask that you work with me to complain to Baron about the outrageous abuse we have seen in this thread. I think that our joint complaint would carry far more weight than just my own, and that it would probably be successful and enable us to continue this highly educational thread, free of interference.

Rockford, while a lot of what you said in your "Dear Don" letter was amusing, the lines quoted above would be the most laughable, if in fact I did not find them so utterly disturbing.

That you would characterize the very important corrections of your misinformed statements as harassment saddens me.

It saddens me that on this great forum where contributors are able and encouraged to offer their knowledge and experience in written form for the benefit of the entire community, one such as yourself would sink to the low depth of attempting to silence those that offer knowledge, expertise and opinions that run counter to your own.
It saddens to know that instead of seeking the truth by welcoming a larger pool of knowledge and experience from which to draw, you instead go about the self-serving project of recruiting persons of integrity such as Don Bright as an ally in your quest to silence those who were learned enough and felt compelled, for the greater good, to point out the errors in your written documented statements.

It saddens that you would favor a quasi-communistic type system where no checks and balances are in place rather than a free, fair and open one.

It saddens me to see that rather than engage in direct adult dialogue with those that offer counter-points and nobly seek to establish truths and correct interpretations of various trading rules and practices so that all can benefit, you choose instead to talk above the issues, use brute-force tactics and create straw-man arguments to obfuscate the fact that you were, on certain occasions... wrong. Your unwillingness to come to terms with that for reasons that I frankly find hard to understand other than some inner need driven by an inflated ego, is a disservice to this community.

Finally, it saddens me to see that while you profess yourself to be a trader and hold yourself out there on this forum as someone from whom other traders can learn and benefit from, the main element of what you have shown on these most recent twenty pages is your lack of willingness to accept facts, come to terms with the truth and perhaps admit to yourself that you were wrong - characacter traits which are of the absolute, utmost importance in a successful trader.


In spite of all this, I still welcome any dialogue on these or other issues.

 

[kowboy]

Quote from Hamlet:

....It saddens me to see that rather than engage in direct adult dialogue with those that offer counter-points and nobly seek to establish truths and correct interpretations of various trading rules so that all can benefit, you choose instead to talk above the issues, use brute-force tactics and create straw-man arguments to obfuscate the fact that you were, on certain occasions... .

Gosh almighty!! I have read this thread, and meaning no disrespect to you at all, would you please slowdown and re-examine the manner in which you recently posted?

When JR, cstu or others have posted what appears to their understanding of the facts which you disagree with, would you do us all the kind favor of responding by specifically correcting the facts as you see it. Instead of merely saying they are wrong. I feel you may have a lot to contribute to our understanding if we could get past the personal stuff.

Thanks a lot.

Mike

 

[Hamlet]

Quote from kowboy:

Gosh almighty!! I have read this thread, and meaning no disrespect to you at all, would you please slowdown and re-examine the manner in which you recently posted?

When JR, cstu or others have posted what appears to their understanding of the facts which you disagree with, would you do us all the kind favor of responding by specifically correcting the facts as you see it. Instead of merely saying they are wrong.

Thanks a lot.
Mike

Thanks for the constructive feedback. I have done exactly as you suggested. If you go back a few pages (maybe more than a few) you will see that.

I am sorry that the thread has evolved into this, as it has gotten tiresome trying to keep up with keeping the truth here, and when someone tries to justify and manipulate the blocking of free speach, especially for a personal agenda, it touches a nerve.