--Scalpers and the ISLD ECN--

Since we exclusively trade ETFs, we too were outraged by the ridiculous step backwards. After having traded QQQ during the past few days without the ability to view ISLD quotes, I have noticed the following:

1.) The AMEX specialist now has a wider spread than ever before. When ISLD quotes were being shown, the AMEX specialist rarely had more than a 5 cent spread. However, I have noticed the average spread for AMEX is now somewhere around 10 - 15 cents, which is total BS! Even with the strong market momentum today, AMEX was continually bidding a nickely below the best bid, which was usually the third market or a different ECN.

2.) It seems like Instinet is suddenly the execution platform of choice and that many ISLD traders have simply switched to Instinet. It is my hope that Instinet picks up the liquidity that ISLD formerly had because I sure as hell don't want to execute through the AMEX anymore!

Just my observations, for what they're worth. . .
 
True, futures are a great trading vehicle for many. However, I still prefer having the ability to trade sector HOLDRS (such as SMH, BBH, OIH, PPH) that are showing relative strength or divergence on days when neither the S&P nor Nasdaq are trending.
 
www.senate.gov
www.house.gov
www.sec.gov

and i also contacted my local representative. check your local listings:D

i think i might email daschle too - he can use it as additional ammo since the sec isnt going to take action against enron board (and phil gramm's old lady) :confused:

not inviting political talk, but i usually vote republican, but now i dont know.
 
I actually went thru and looked at how the change this week affected ISLD's QQQ volume and where that liquidity might be flowing. In the 3 days before the change ISLD was averaging 35-40% of the QQQ volume, and since the change has hovered in the low 20%. It was slightly higher on Monday as traders went ahead and gave ISLD a try, but has dropped off by a couple % since then. Meanwhile the QQQ volume on INCA and ARCA has more than doubled putting both ECNs over the magic 5% threshhold. I presume that as people who still route to ISLD out of habit explore other routes out of frustration, the percentages may spread out a bit more.

And wouldn't that be great for AMEX? Eventually, ARCA and INCA will be in ISLD's status, and then the only book left standing will be the AMEX and any other exchange or ECN that agrees to conform to the cross/tradethrough rules...which effectively makes the slowest member of the system the controlling book. And that means that in all but the quietest periods, it will be impossible to get a spread which reflects reality....those times of greatest volatility is when traders want to be in a market, and that is precisely when the spreads will be the most ficticious.

Program trading arbs who used to be happy to capture a few pennies will have to either leave the game or widen their target spreads considerably, getting in less often than they did in the past. Scalpers will similarly be hating life finding it hard to get the entries they want as the spreads everywhere widen. All of this reducing the intraday volume and liquidity of the ETFs. With the days of 1 penny spreads long gone, the trading risk goes up for instruments which typically move slower than individual tickers and therefore offer less reward...this degradation of the risk/reward ratio drives some intraday position traders already on the fence to the e-mini futures or perhaps to the more liquid Naz tickers. When all is said and done, the AMEX specialist who seems to be the only clear beneficiary in the ETF universe ends up with a larger share of a smaller market.

Well one benefit to the wider spreads that the specialist enjoys is that when the slowest market has a wide spread, the faster ECNs will have more room inside to match orders without crossing or trading through. As a result, the trader can perhaps still get their fast fill, but the quality (price) of the fill is degraded. Wait a second...wasn't the whole purpose of this drill to improve the quality of fills?

The main reason that I like trading the Q's has always been the tight spreads and liquidity at any price. Yes, the reward potential is higher on some of the Naz fast movers and the e-minis, but I decided that in this market and my personal situation I'd rather have the safety. In my style I typically shoot pennies above the ask on buys and pennies below the bid on sells so that I get instant fills on entry and exit. I'm still getting good enough fills (mostly on ISLD right now) to allow me to trade, but if the rugs are pulled out from under the ECNs one by one, and the spreads widen, I figure I'll be paying a few pennies extra each way to get my instant fills. I'm not so sure how long I'll be willing to put up with that before moving to other instruments/styles.

Mr. SEC: Tell me again, exactly who is being helped here? (of course we all know the answer)

--Derek
 
Originally posted by cornholetrading
Good post Alan. I am surprised the press like CNBC did not pick up on it because they have been talking about ETFs everyday the last few weeks. This is a big change which might be of interest to its viewers. When the Pattern Daytrading Rule was first coming out I had a couple of friends write CNBC and CNBC had no idea about the rule. It seemed odd such a rule effecting part of their target market was unknown to them. However I guess they finally caught on and did a couple of stories later about it. I wonder if they are as uninformed about this rule as that one.
More...

CNBC is clueless, I think those guys should be on Leno's Jaywalking segment on the Tonite Show.
 
I browsed around SEC and other related links after reading this post, I wound up reading a bunch of these so-called "research reports on daytraders"...you would think that these would be written in such a way that presents the fact with no bias, but the language it was written in suggested nothing but daytrading as gambling, and that no one makes any money, scams and ripoffs, etc... There was a time I thought the SEC was actually watching out for the "people", but now I am not so sure...they sure do look like they are the "arms and legs of the big boys".
 
I've contacted the AMEX, and am waiting for a reply to my request for more information about the reasoning for this action, etc.

At first glance, the "locked market" argument makes no sense, since I currently see a "locked market" with Redi/ARCA bids higher than AMEX offers.

Those of you who sent me PM's and emails looking for an opinion....I'm on it, just trying to gather some details at the moment.

Don
 
Unfortunately, I simply don't see where we have any leverage.

The thieves are in charge of the henhouse, and they have the money to grease the wheels to keep it that way.

The politicians don't give a damn, the SEC cares less than the politicians, and the AMEX specialist loves it.

I would be happy to be proven wrong, but I am pessimistic.
 
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