Price Improvement on NYSE must GO !

Heyman,

So what you mean basically is the following.

The market is 50.00 by 50.03 you buy the offer @ 50.03 and offer out stock @ say 50.15 then after a couple of minutes the specialist will print a big print @ 50.14 not filling your seel order.

Is this what you mean?

I have had these problems quiet often myself.

Anyways thanks reply.



Wercurna
 
No, what I mean, as an example is:

market is 10.00 by 10.06, and I'm sitting with the best ask at 10.06. Market orders come in, which should hit me at 10.06, but these orders get filled at 10.05, due to price improvement. 5 or 6 of these situations pass, and then the market starts moving south. I'm screwed being a limit order, in this scenario.

As other posters have stated, there is rumor of Specialists having to price improve 3-5 cents, as opposed to a penny. Hence, if the Specialist is doing the improving on the above scenario, and 3 cent rule is in place, he would have to price improve to 10.03, not 10.05, on incoming market orders. He will be less inclined to do this, unless he knows that the market is going south in the short-term.
 
Quote from wercurna:


Again i don't mean to attack i just want to understand why people that trade the NYSE complain about NYSE. why not just trade Nasdaq.

Please give me some clarification since i am a little confused

wercurna
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What everyone is complaining about is a tactic many NYSE specialis are using called "Pennying". The rule the specialists have been required to follow for years is that they cannot step in front of a customer buying or selling stock with limit orders unless the specialist did so at a better price. When stocks were trading in eights that ment the specialist had to bid or offer $0.125 better than the best customer order on his book. But now that stocks trade in penney's the specialist can technically abide by the same rule by only bidding or offering one cent ($0.01 vs $0.125) better than any customer order on his book. In effect, now he CAN step in front of customer orders with negligible cost/risk to the specialist.

Most traders want this practice of "Penneying" outlawed by requiring that the specialist bid or offer at least $0.05 better than the best customer bid/offer on his book.

Since the specialist has knowlege of all open orders on a stock, he presently knows that if he steps in front of a customer by one cent that he has orders right behind him (and how many) basically reducing his risk to nothing at the expense of customer orders. Even if the customer one cent behind the specialist elected to cancel his order the specialist could dump his stock on the customer as soon as he saw the cancel saying "too late to cancel" - so the specialist only risked one cent to possibly make the spread or more on the other side if orders moved the stock price in his favor.

Did that make sense?

Wally
 
Also, the specialist isn't required to show on his book (or on your quote screen) his intent to bid or offer stock at this one cent in front of customers. He can wait until a market order comes in to decide if he wants to "Penny" the stock or not.

Quite a profitable game for the specialist.

Wally
 
Quote from hayman:

I wholeheartedly believe what you are telling me. Why would a Specialist firm get involved in a low-liquidity issue, if it couldn't make money on it, even if it is a small amount ?

Yes, you are right about the low liqudiity issues. I trade them, because I feel comfortable with that style of trading. And although a belly-ache about price improvement (it hurts me a hack of a lot more than it helps me !), I still make a nice profit doing what I love. However, given the nature of the stocks I trade and the "price improvement nightmare" that I face each and every day, I believe that I making about 40 % below what I should be making (please don't ask me how I arrived at that figure :).

Although I don't know any Specialists personally, I have friends who do, and from what I hear, bending of the rules is part of the game. With Grasso getting expelled, perhaps things will start changing, even if it is a little bit at a time.

Thanks again for your views.
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Good posts hayman! Yes, I agree with pretty much every point you've made about trading on the NYSE.......and the "pennying" that goes on there.

I also agree with your "40% below what you should be making" gut feeling.....my "gut" estimate is also very close to that.

It really is a crime when 4 out of 5 times someone else agrees to interact with your limit order, but is interrupted by the specialist in his attempt to steal order flow and use YOU! as a fail-safe order to trade against in case he feels that he can't make a buck off that order flow.

If they want to make a market....let them post their orders like everyone else.
 
I do have a positive thing to say about the specialist system.

For example Friday when the market started selling off around 2:45 had to sell a stock i was long AGM was the stock as soon as i felt the sell off coming i sent a market order to sell 1000 shares of AGM at the market (this is a very thin stock) but still the specialist printed me 12 cents below the offer on this very thin issue. There were no apparent buyers on the specialist book but for some reason i still think that losing 12 cents on a 1000 shares for such a thinly traded stock is not that bad.
This is the most recent example of how i feel i benefit from trading on NYSE and there are more times that i feel that i get pretty good treatment from the specialist

I don't have much experience with Nasdaq but from what i hear a thinly traded Nasdaq stock would fill you much worst then a 12 cents loss.

For some reason even though the specialist are trying to manipulate the market many times there are other times that the specialist system save.............. at least my but.

Any comments are more then welcome,
 
Quote from hayman:

No, what I mean, as an example is:

market is 10.00 by 10.06, and I'm sitting with the best ask at 10.06. Market orders come in, which should hit me at 10.06, but these orders get filled at 10.05, due to price improvement. 5 or 6 of these situations pass, and then the market starts moving south. I'm screwed being a limit order, in this scenario.

As other posters have stated, there is rumor of Specialists having to price improve 3-5 cents, as opposed to a penny. Hence, if the Specialist is doing the improving on the above scenario, and 3 cent rule is in place, he would have to price improve to 10.03, not 10.05, on incoming market orders. He will be less inclined to do this, unless he knows that the market is going south in the short-term.
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Why didn't you send a market order in instead? You would of gotten filled at .05? I don't understand how you can complain? Don't put a limit on next time. If you want to sell, sell at the market and you'll get filled. When you see fills like that you may want to cancel your limit and put a market order in if you really want to sell.

And your second scenario would only make price improvement disappear which in your case you think will benefit you. But I think it will only hurt investors because when there are chances of price improvement in instances of less than .05 then you don't get it. Nobody gets it.
 
Quote from hayman:

No, what I mean, as an example is:

market is 10.00 by 10.06, and I'm sitting with the best ask at 10.06. Market orders come in, which should hit me at 10.06, but these orders get filled at 10.05, due to price improvement. 5 or 6 of these situations pass, and then the market starts moving south. I'm screwed being a limit order, in this scenario.

As other posters have stated, there is rumor of Specialists having to price improve 3-5 cents, as opposed to a penny. Hence, if the Specialist is doing the improving on the above scenario, and 3 cent rule is in place, he would have to price improve to 10.03, not 10.05, on incoming market orders. He will be less inclined to do this, unless he knows that the market is going south in the short-term.
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Ok so lets take a look at this.

There is no possible way that people are throwing in limits in front of you or that the specialist is matching market orders. Or that there could be size on consolidated. Or maybe the specialist has an outside order he has to fill and he is not showing it.
Given that,

You do not get your fill, but several people get price improvement. But maybe if you u go market you get your fill 1 penny below How is that unfair? The world does not revolve around you. Yeah I know sometimes it feels like the specialist is going after you personally (I trade the same stocks, btw)

I'm not defending the specialists at all, but what's so wrong if he wants to sell/buy stock one penny better than what you are offering/bidding. How is that any different from traders fighting with limit orders?

I never use limit orders anywhere close to the inside market, especially on the illiquid stocks. Last thing I need, is you or another trader to start limit order fighting and force the stock in the wrong direction. Then there is the specialist, who does actually trade also.
 
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