Questions about NYSE

[jimrockford]

It is a fact that NYSE publishes deceptive quotes. It is a fact that when you try to hit a NYSE bid or ask, you will often be denied an execution, because the displayed bid or ask has already been filled and become unavailable, and the displayed quote is actually stale. The display of NYSE stale quotes misleads people into routing their orders to NYSE, when in fact, the best price is often available elsewhere. The display of NYSE stale quotes also misleads people into trading at times and at prices which they would not choose if up to date quotes were displayed. The most important problem, with NYSE stale quotes, is that they have, for many years, operated thru the trade-thru rule to block executions from occurring at other market centers, at prices inferior to the stale quotes, but superior to the true price which you actually get by routing to NYSE. The new Regulation NMS will solve the trade-thru part of this problem when it becomes effective in the near future.

NX does not solve these problems because NX, very simply, is often unavailable, so that the order you attempt to NX is instead routed to the specialist for manual "handling".

Some of the more unreasonable comments in this thread ignore the simple fact that NYSE specialists have a long regulatory track record of systematically breaking NYSE rules, and that NYSE disciplinary officials have a long regulatory track record of systematically failing to enforce NYSE rules and of colluding with specialists to help them to break NYSE rules. It is silly to defend NYSE with arguments based on the false assumption that NYSE rules are actually followed or enforced.

It is also a fact that NYSE rules allow floor traders to step in front of public customer limit orders, without quoting a better price than the public customer limit orders. Public customer limit orders, on the NYSE specialist limit order book, do compete on a price-time priority basis with each other, but floor brokers do not compete with the book on a price-time basis. A complex set of NYSE rules allow floor brokers to trade in front of the book in many situations. Floor brokers will tend to let you get an execution most readily at the times when the market is moving against you, so that you will regret getting filled. If the market is moving in favor of your direction, then floor brokers will be more likely to step in front of your order, so that you often won't get executed at those times when an execution would be most desirable.

It amazes me how doggedly the NYSE defenders try to sell NYSE as a bunch of choirboys. Maybe they need a reminder of the solid facts proving that NYSE is fundamentally corrupt.

See my next post.

 

[jimrockford]

http://www.washingtonpost.com/wp-dy...-2005Apr12.html

Fifteen NYSE Traders Indicted
Investors Were Cheated, U.S. Says

By Carrie Johnson
Washington Post Staff Writer
Wednesday, April 13, 2005; Page A01

Fifteen current and former traders at the New York Stock Exchange were criminally charged yesterday with cheating investors out of the best prices for their stock trades in what could be unparalleled abuse of their position at the world's largest and most prestigious stock market.

The exchange also faces disciplinary action for failing to adequately police its sprawling floor, where 1,366 traders handle an average of 1.6 billion shares a day. The traders are accused of getting in between orders to buy and sell, taking for themselves the best prices and depriving investors who ordered the trades of at least $32.5 million.


"These defendants broke the rules repeatedly, they cheated the markets, and they cheated the investors who relied upon them," said Manhattan U.S. Attorney David N. Kelley.

The indictments are the result of a two-year investigation into one of the widest-ranging manipulations ever of trading at the exchange, known as the Big Board, and they follow a series of ethical breaches in recent years that have tarnished the exchange's image as the most transparent and fair market in the world.

The stocks at issue in the improper trading include some of the nation's biggest companies, including Bank One Corp., Eli Lilly and Co., Hewlett-Packard Co., Merrill Lynch & Co., Pfizer Inc., Time Warner Inc. and the Walt Disney Co., according to court papers.

The charges come at a time when investor confidence already has been eroded by years of accounting scandals and revelations of illegal mutual fund trading. The abuses operated within the heart of a system that was designed to protect the interests of investors and to ensure they receive the best price for their trades.

At the same time the indictments were announced, the Securities and Exchange Commission filed separate civil charges against the 15 traders and five others. The traders "showed a disregard for their legal duty that was both profound and at times, profane," said Mark K. Schonfeld, director of the SEC's Northeast regional office.

In some cases, these traders, known as specialists, made statements explicitly denigrating investor orders placed through the exchange's electronic trading system, known as the designated order turnaround system, or DOT. Unnamed specialists said, "Screw the DOTs," according to an SEC news release.

Most purchases and sales of securities on the NYSE go through a system in which specialists are assigned to monitor particular stocks. They are obliged to match customer orders with each other whenever possible and ensure that the trading system works smoothly to find the best prices for buyers and sellers, experts said. Trades in the stocks may be made only through the specialists, which is why their role is so critical.

Traders were accused yesterday of buying or selling stock for their own accounts at prices that were better than those they gave to existing public orders. That practice is known as "trading ahead," regulators said.

Fifteen NYSE Traders Indicted

The specialists also were accused of using a trick in which they bought a customer "sell" order and then sold at a higher price into an opposite "buy" order from another customer, pocketing the difference. Such moves helped the traders lock in guaranteed profit at the expense of their customers.

The fraudulent practices enriched the specialist firms and resulted in higher salaries and bonuses for people who took part in the manipulation, U.S. Attorney Kelley said.

The SEC settled civil charges against the NYSE for failing to police and discipline the errant specialists. The exchange, which did not admit or deny wrongdoing, agreed to spend $20 million to beef up regulatory audits by hiring an independent reviewer. The exchange also said it would start an 18-month pilot program to provide video and audio surveillance of activity related to at least 20 stocks on the trading floor.

The SEC criticized the exchange's monitoring system, saying it was set up to uncover "only the most egregious instances of trading violations."

Richard G. Ketchum, the exchange's chief regulatory officer, said the NYSE has strengthened its enforcement unit and installed new technology to prevent improper trading since the investigation began in 2003. The regulatory unit now reports directly to the board of directors, rather than the NYSE chief executive, to help insulate it from pressure from traders and member firms.

"Specialist firms have changed, as have we," Ketchum said in a news release.

"It's highly unusual and somewhat shocking to see criminal activity on the floor of the New York Stock Exchange," said Jacob H. Zamansky, a securities lawyer who represents individuals suing Wall Street firms. "It also highlights that the NYSE seems incapable of supervising [traders]. It's a big setback for investor confidence."

U.S. Attorney Kelley pointed out that 14 of the people indicted yesterday at some point served as supervisors or managers at their respective firms -- Fleet Specialist Inc., now Banc of America Specialist Inc.; Bear Wagner Specialists LLC; LaBranche & Co.; Spear, Leeds & Kellogg Specialists LLC; and Van der Moolen Specialists USA. Most of the defendants, except for one authorities say is at large in the Netherlands, surrendered yesterday morning and were scheduled to appear in court for arraignments.

These firms and two others, SIG Specialists Inc. and Performance Specialist Group LLC , agreed to pay $247 million to settle related civil charges last year.

Indicted were David A. Finnerty, Donald R. Foley II, Scott G. Hunt and Thomas J. Murphy Jr. of Fleet; Frank A. Delaney IV and Kevin M. Fee of Bear Wagner; Freddy DeBoer of LaBranche; Robert A. Johnson Jr. at Spear, Leeds; and Patrick J. McGagh Jr., Joseph Bongiorno, Michael J. Hayward, Richard P. Volpe, Michael F. Stern, Gerard T. Hayes and Robert A. Scavone of Van der Moolen.

A defense lawyer for Finnerty, Frederick P. Hafetz, said that his client pleaded not guilty and that Finnerty "did nothing wrong." Other defense lawyers did not return calls or could not be reached for comment.

Columbia University law professor John C. Coffee Jr. said the criminal charges against specialists based on fundamental trading practices are unprecedented -- and a direct result of increased scrutiny by law enforcement authorities across the financial services industry.

"What prosecutors are recognizing is that across the financial field, the one weapon that seems to work, frightening as it is, is the criminal sanction," Coffee said.

The NYSE previously settled civil charges related to inadequate policing of independent floor brokers in 1999. Eight brokers connected to Oakford Corp. faced criminal charges for setting up secret accounts using phony documentation and illegally profiting from them in the late 1990s.

The investigation by federal prosecutors continues, according to spokeswoman Megan L. Gaffney.

Securities regulators also continue to probe the actions of individuals "who may have fallen down on the job and contributed to the failure that resulted in the case we bring today," SEC enforcement chief Stephen M. Cutler said.

 

[Avid_Consumer]

well i'm personally kind of looking forward to calling in every single instance and starting a record of calls on the 2 guys i deal with. i have a feeling if they see that i'm willing to do it every single time, it will probably cease fairly quickly because otherwise they'd be racking up at least 2-5 complaints each per day

nothing vindictive, just want to trade at the prices they quote. even with calls though, they still kind of have you since in many/most instances taking the hit is worth more than sitting on the phone for 10 mins on the high probability of not getting the fill

 

[jimrockford]

Quote from Avid_Consumer:

well i'm personally kind of looking forward to calling in every single instance and starting a record of calls on the 2 guys i deal with. i have a feeling if they see that i'm willing to do it every single time, it will probably cease fairly quickly because otherwise they'd be racking up at least 2-5 complaints each per day

nothing vindictive, just want to trade at the prices they quote. even with calls though, they still kind of have you since in many/most instances taking the hit is worth more than sitting on the phone for 10 mins on the high probability of not getting the fill

Don't be so optimistic. NYSE rules allow for the manual updating of quotes, instead of automatic updating. Manual updating is inevitably slow and causes stale, untradeable quotes to be displayed. Nothing about this violates NYSE rules. Nothing about this provides any basis for disciplinary action against a specialist. Your difficulties with hitting stale NYSE quotes will never end, as long as NYSE rules permit the display of stale quotes.

 

[lfkc60a]

Quote from Maverick74:

Oy vey. Carry on hotshot trader. I traded more stock in a day then you traded in a year. You know what, you are right. After thinking about it, the specialist are afraid of your tiny orders and they are backing away from every order you send. You have them on their heels. LOL. The fantasies of ET traders these days.

You seem to know about everything, including how many shares I trade. Well after this comment last night I went back to review my activity since the early 90's. Since my first trade in '93 I have traded just under 900 Million shares on the NYSE, so I think I know what I am talking about as far as the fills go. If you traded more than that, good for you, but I doubt it because you would have more of a clue about this matter. This list I showed for reasons the specialist does not have to honor the AutoEx, was to show that he HAS THE ABILITY to DEACTIVATE it when he wants.

As fas as calling to complain, This is what would happen.

1. You try to AutoEx a 1000 bid at 50. He holds your ticket anyway.

2. Now you are the offer, you can - A. Change your order and go on your way. B. Try and complain.

3. If you complain, in the meantime, you CANNOT cancel or change that order or else the Complaint can not be acted upon.

4. So not you leave you 50 offer out there. During that time 2 things can happen A. The stock goes back up and trades 50 again, and the problem is solved. or B. the stock goes lower and you are still at 50. If you are lucky someone will get back to you in only a hour.

5. Maybe 10-20% of the time you might get the fill, in that case you get the 50, The other 80-90% they have some excuse. In this case you risk losing a hour worth of downside.

The risk/ reward in no way favors complaining over this, thats why the specialist abuse it, and it is hardly ever reported.

 

[jimrockford]

Quote from lfkc60a:

Rule 1000

Rule 1000 states the basic operative principles providing for automatic execution of limit orders of 1099 shares or less against the Exchange’s published quotation. The Rule lists six instances in which the automatic feature would not be available due to market situations, lack of depth in the published quotation, or inappropriate pricing of the auto ex order, as follows:

· the NYSE’s published quotation is non-firm (pursuant to Rule 60);
· the NYSE’s published quotation has been gapped (pursuant to the Exchange’s usual procedures for such situations) for a brief period because of an influx of orders on one side of the market, and the Exchange’s published quotation size is 100 shares at the bid and/or offer;
· a better price exists in another ITS participating market center;
· the NYSE’s published bid or offer is 100 shares (see Rule 1001(c));
· a transaction outside the Exchange’s published quotation pursuant to NYSE Rule 127 is in the process of being completed, in which case the specialist should publish a 100-share bid and/or offer; or
· trading in the subject security has been halted.

Rule 1000 provides that an auto ex order that cannot be immediately executed for any of the above reasons will be automatically entered for execution in the Exchange’s auction market via the SuperDOT system. Once it is entered in the auction market, it will be treated the same as any other limit order entered onto the Exchange.

Don't forget the 5-cent rule.

If auto-ex of your order would result in an execution more than 5 cents away from the previous NYSE trade price, then auto-ex will not allow you to receive an automatic execution, and it will instead route your order to the specialist for manual "handling", which will involve all the delays, costs, and risks which we are trying to avoid by seeking auto-ex.

This 5-cent rule is part of NYSE Rule 1000. I figure it must have been added as an amendment at some point, probably after the last time you read the rule, so this is why you omitted it from your list of obstacles to auto-ex.

I analyzed the effect of the 5-cent rule throughout one particular day of trading in the security SPY. I found, on that particular day, that the 5-cent rule disabled NYSE auto-ex throughout small time intervals totalling approximately 10 ten percent of the trading day, but that these small time intervals were the times when traders most wanted or needed to trade so that much or most trading occurred during those times, so that roughly half of the day's volume executed while auto-ex was disabled by the 5-cent rule. So it appears that auto-ex is available when it isn't needed very mcuh, but when it is most needed, it is not available, regardless of whether there are others willing to take the other side of your trade.

My calculations only measured the effect of the 5-cent rule. I did not even attempt to determine how much of the day's clock time and trading volume was covered by unavailability of auto-ex caused by obstacles OTHER than the 5-cent rule (for example, 100 share quotes, better prices available in the ITS, etc., etc.).

 

[Maverick74]

Quote from lfkc60a:

You seem to know about everything, including how many shares I trade. Well after this comment last night I went back to review my activity since the early 90's. Since my first trade in '93 I have traded just under 900 Million shares on the NYSE, so I think I know what I am talking about as far as the fills go. If you traded more than that, good for you, but I doubt it because you would have more of a clue about this matter. This list I showed for reasons the specialist does not have to honor the AutoEx, was to show that he HAS THE ABILITY to DEACTIVATE it when he wants.

As fas as calling to complain, This is what would happen.

1. You try to AutoEx a 1000 bid at 50. He holds your ticket anyway.

2. Now you are the offer, you can - A. Change your order and go on your way. B. Try and complain.

3. If you complain, in the meantime, you CANNOT cancel or change that order or else the Complaint can not be acted upon.

4. So not you leave you 50 offer out there. During that time 2 things can happen A. The stock goes back up and trades 50 again, and the problem is solved. or B. the stock goes lower and you are still at 50. If you are lucky someone will get back to you in only a hour.

5. Maybe 10-20% of the time you might get the fill, in that case you get the 50, The other 80-90% they have some excuse. In this case you risk losing a hour worth of downside.

The risk/ reward in no way favors complaining over this, thats why the specialist abuse it, and it is hardly ever reported.

I think you are a mook. That's my honest assesment of you. No one bitches as much about fills as a mook. You are a mook.

Sorry, I don't trade listed stocks anymore. I haven't since 2002. Sorry if I don't stay up to date on every freaking amendment to the rules. I seriously doubt you are a good trader and I seriously doubt you read the tape. I never had an issue with fills. And when guys in our group did, yes, they called.

You shouldn't f*cking wait to hit a bid when the buyer is gone. No way you have been trading successfully since 1993 if you don't know that. I hit bids. I take out the buyer. I'm not trying to sell in a panic to the specialist. There is a reason why you read the tape. Mooks always wait too long. The buyer is gone they go to sell and then they complain about fills.

Anyway, I've wasted enough time on you. Have a good weekend.

 

[jimrockford]

I find Maverick74's name-calling to be, at best, unpersuasive.

 

[Maverick74]

Quote from jimrockford:

I find Maverick74's name-calling to be, at best, unpersuasive.

A mook is the correct term to be used here. I'm sorry, there is not a better word for it. It is what it is.

 

[eusdaiki]

Common you guys... you gotta be kidding me...

Even if you trade nasdaq... your limit orders usually get filled when the market is going against you... and I know there ain´t any fron running in the ECN´s... I constantly check the island book to see my position on the queue.

I´ve also traded NYSE for some time... and I have plenty of students trading NYSE full time... I´ve never noticed anything unusual about the excecution... except that the open book can be a bit slow... but in fast markets I just use ecn´s to route my orders.