Observations on the NYSE specialist.

Quote from alanm:

I don't understand why matching the opening price is any different than going through it. That is, for a 90K opening at a zero-plus tick of 80.50, are not all 6 of these orders guaranteed a fill?

Buy 200 MKT OPG
Buy 200 LMT 80.50 OPG
Buy 200 LMT 81.00 OPG
Buy 200 MKT DAY
Buy 200 LMT 80.50 DAY
Buy 200 LMT 81.00 DAY

Now, if your puny order causes the spec to push the opening price to 80.51, then it is obvious that your LMT 80.50 orders don't get filled. Other than that, though, if the stock opens at 80.50, how can you not get filled?
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I believe I have the answer to your question. I will state it in the form of an argument, so that you can SEE it, rather than read it.

Let's simplify by assuming that shorts and longs are treated symettrically and identically, without any tick tests or other short-selling restrictions. Suppose we have the following buys and sells, getting ready for a single price opening:


BUY 100 LOO 80.51
BUY 100 LOO 80.52
BUY 100 LOO 80.53
BUY 100 LOO 80.54
BUY 100 LOO 80.55
BUY 100 LOO 80.56
BUY 100 LOO 80.57

SELL 100 LOO 80.51
SELL 100 LOO 80.52
SELL 100 LOO 80.53
SELL 100 LOO 80.54
SELL 100 LOO 80.55
SELL 100 LOO 80.56
SELL 100 LOO 80.57

Now ask yourself, where should the specialist open? The answer is 80.54, at which a total volume of 400 shares can transact at the open. You can verify for yourself that at any other price, the total volume which can execute will be less than 400 shares, so that 400 shares is the optimal opening price.

Now let's make a small adjustment. Let's add one more order to the scenario, as follows:

BUY 100 LOO 80.54 {order sent by alanm}

Note that we now have 200 shares of buying interest priced at 80.54.
Now ask yourself, where should the specialist open? The answer is still 80.54, at which a total volume of 400 shares can still transact at the open. You can once again verify this for yourself. But here is the problem. Where is the liquidity contra to the extra 100 shares of buying interest which we have just added to the scenario? The answer is that there is no such contra liquidity, there is no such selling liquidity. This means that from among all the buying interest priced at or above the single priced open of 80.54, SOMEBODY has to get stuck without a chair when the music stops playing. Who is that someone? Well, by the rules of price priority, it must be one of the people who is trying to buy at the lowest possible price from among the competitors. This leaves two candidates: alanm's order to buy 100 shares, OR the similar order for 100 shares, submitted by the guy who got there first.

The guy who got there first wins. He gets executed. You do not get a fill.

I agree with cstu that the single priced open is one of the fairest procedures at NYSE.

If you understand all of this, then I suspect you will start to entertain greater doubts as to your use of the concept of "marketable" in the context of a single-priced opening or closing print.
 
Pretty good Jim. You are learning some concepts that will go a long way. With decimal pricing it should be fairly infrequent that every marketable order and every lmt at the opening price not be filled. When there was more liquidity at each tick 1/8 it was a fairly common occurence.
 
Quote from jimrockford:

Disagree. This is conclusive. Proof-positive. Long sales take NO priority over short sales, except for Market-on-Close orders.
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This is incorrect.

I suggest you know all the rules before you post definitive answers, or you do a disservice to readers.
 
Quote from alanm:

I don't get it. The single price implies to me that there is no precedence issue.

Take the short-sale out of the question and see if we can agree on this one:

Example 1:
6 different orders sent at 09:15 ET:

Buy 200 IBM MKT OPG
Buy 200 IBM MKT DAY
Buy 200 IBM LMT 82.00 OPG
Buy 200 IBM LMT 82.00 DAY
Buy 200 IBM LMT 83.00 OPG
Buy 200 IBM LMT 83.00 DAY

IBM closed at 80.24, and the spec expects to open on about 90,000 shares at 80.50.

Is there any reason why all 6 of these (marketable) orders would not be executed if the stock opens at 80.50? How can there be any precedence when they are all effectively marketable and guaranteed a fill?


Now, Example 2:
6 different orders sent at 09:25 ET:

Sell Short 200 IBM MKT OPG
Sell 200 IBM MKT DAY
Sell 200 IBM LMT 80.00 OPG
Sell Short 200 IBM LMT 80.00 DAY
Sell Short 200 IBM LMT 79.00 OPG
Sell 200 IBM LMT 79.00 DAY

IBM closed at 80.24, and the spec expects to open on about 90,000 shares at 80.50 (an uptick).

Is there any reason why all 6 of these (marketable) orders would not be executed at 80.50 if that is the opening price? How can there be any precedence when they are all effectively marketable, uptick-qualified, and guaranteed a fill?


Examples 3, 4:
Do the same things as 1 and 2 at 15:30 ET, subbing CLO for OPG. Assuming the close is 80.50 and that is a 0-plus tick, is there any way they don't all get filled?
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Those all get filled in your examples.
 
Quote from jimrockford:

Moderator,

I believe that my last posting, quoting from Hamlet's words with no additional commentary, was not only on-topic, but also of great value and great necessity to readers trying to figure out whether to rely upon Hamlet's claim to possess superior expertise backing his assertions about NYSE procedures (I don't make such claims of superiority). I acknowledge, at the same time, that in combination with the last few pages leading up to my last posting, it must be extremely embarassing for Hamlet, but I think this embarassment is something he brought upon himself by his own actions, and that it is more important that ET readers not be misled.
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Setting the record straight and correcting Rockford's above misleading remarks and lies:


Hamlet is not embarrassed.

Hamlet does not mislead ET members.

Hamlet claimed to have "experience"; superior expertise is a relative term that was never used.

Hamlet stands by his statement that long sales experience execution priority over short sales.
 
Maybe I can help out a firm and teach the traders how the NYSE auction market works. I have a verifiable track record high six-low seven net per year in my last gig over a few years trading about 350,000 shares a day. PM me.

If you guys understand what a "held" order is? Figure out where every order is "held" based on ticks. You can't be traded through if you have a held order on the NYSE.
 
Quote from cstu:

Maybe I can help out a firm and teach the traders how the NYSE auction market works. I have a verifiable track record high six-low seven net per year in my last gig over a few years trading about 350,000 shares a day.
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Anyone who read the opinion presented here (I wont mention names) that it would be a waste of time learning how to trade stocks on the NYSE because those skills have a limited time value should take a good look at this statement from ctsu, and the numbers, and ask yourself if that sounds like credible advice.

No tool should be ignored. You should have as many tools in your trading arsenal as you can manage. To ignore one arena would be a huge mistake. Even if it changes dramatically in the coming years (as it has in the most recent few years), the experience that you gain will enrich you and make you stronger.
 
What I don't get is if a trader is decent why are they chasing the shorts. The uptick rule allows a trader on nyse to estimate where others are getting short. Being said, to do that requires the uptick. I find it useful. Allows me not to start a short campaign to early and alone. Also if you miss initial entry, just let the trade go, find another. To many people chase the fluff, and get chopped up by the black boxes between actual points of decent liquidity.
 
Quote from jimrockford:
...But here is the problem. Where is the liquidity contra to the extra 100 shares of buying interest which we have just added to the scenario?...

The specialist. It's unlikely, at any opening or closing, that there is ever an exact match between the buying and selling interest at a given price. That's one of the jobs of the spec - to either find the other side of the trade or take it himself.

Note that I'm not trying to address where the spec should decide to open the stock - that obviously depends on whether he wants to be long or short as a result of having to take the other side of the sell or buy imbalance. I'm talking only about whether, given a specific opening print, the specified orders are guaranteed a fill.

cstu: Since you confirm that all those orders should be filled unconditionally, can you confirm my understanding above, specifically:

1. Any market order to buy or sell at the open/close is guaranteed a fill.

2. Any limit order to buy or sell at the open/close, whose price is at or better than the opening/closing print, is guaranteed a fill.

3. Any market order to sell-short at the open/close is guaranteed a fill if the stock is tick-exempt or the open/close price meets the tick-test.

4. Any limit order to sell-short at the open/close, whose price is at or better than the opening/closing print, is guaranteed a fill if the stock is tick-exempt or the price meets the tick-test.

OR

Is it correct, as Jim contends, that a limit order priced AT the open/close price may not get a fill if the spec does not want to take the other side (and can't get anyone else to do so).
 
Quote from Hamlet:

Anyone who read the opinion presented here (I wont mention names) that it would be a waste of time learning how to trade stocks on the NYSE because those skills have a limited time value should take a good look at this statement from ctsu, and the numbers, and ask yourself if that sounds like credible advice.

No tool should be ignored. You should have as many tools in your trading arsenal as you can manage. To ignore one arena would be a huge mistake. Even if it changes dramatically in the coming years (as it has in the most recent few years), the experience that you gain will enrich you and make you stronger.
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I have to agree..."Adapt or Die" as mentioned many times here on ET.
From 3 years ago: http://www.traders.com/Documentation/FEEDbk_docs/Archive/012003/Abstracts_new/Bright/bright.html

Full Story: http://www.stocktrading.com/Adapting.html

(for those interested)

Back to the Long vs. Short discussion from yesterday. We finally agreed that for Openings and MOC's that long stock takes priority over short stock....BECAUSE 1. There is single time (no time priority on either) and 2. Because there is a finite number os shares to match up.

Now...regarding intraday...Time Priority takes precedence until a single trade of the best time order takes place (partial) then they are on paritiy with other orders at the same price limit.

All the best,

Don
 
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