Quote from def:
Trajan,
I agree with many of your comments but disagree with others.
The main difference IMO is that market makers should have no advantage over anyone else except lower fees and maybe mass loading privileges in return to the obligation to show real time price prices and/or respond to quote requests within a given width and amount of time. Naturally, they should have to HONOR their quotes as well. This method works well for most exchanges outside of the US.
I agree with one caveat, if your sending a pick off order don't be pissed if they fade. MMs have an obligation to make fair and orderly two sided markets, don't be mad at him if the stock tanks 1/2 a point on a tick and the OBO is slow to get rid of a bid in the book. If the situation changes, their markets change and some times things are slow to adjust. They shouldn't be held to an infallable standard.
As far as rights and priviledges go, I completely agree. My posts was to illustrate that these things people complain about are minor details in the larger mix of things. They aren't illegal nor criminal as people want to believe. There are better ways to organize option markets than currently exists. I began trading in Europe where the dynamics are much different. It's the way I learned to trade and goes to the heart of the matter in the rant above. I have a different view than what most floor trader here in th U.S. have. In effect, I learned how to make markets in the free for all and came back to trade in the old boys club of the CBOE. I couldn't adjust.
The funny thing is we never honored quotes if we weren't there. There was rule, of course, to be five up, but it ignored by all.
What is troublesome to me, is that rather than innovate, lower costs and become more open to the increasingly sophisticated off floor traders, the exchanges are behaving like a cartel and employing anti-competitive measures.
Agreed, I think this is due to their organizational structure. Actions are taken to preserve profit margins of the membership and not to increase order flow. I prefer the latter.
If they really opened up, upstarts like BOX (and later on perhaps Eurex) wouldn't see any need or edge in offering US equity options.
How many exchanges can be supported? We've know of these issues for years and yet the incumbant players have done little. Isn't it kind of odd how the rest of the world threw out the old way and the U.S. exchanges are still clingng to the past.
Yes, there is a cost to canceling or modifying trades but isn't it strange that the charges arrived with the onset of linkage and that all the exchanges implemented them in similar ways? Why aren't the exchanges giving credits to firms that do size trades or volumes? I know from a systems standpoint, the cost of a cancel certainly doesn't approach $1.
Yeah
I should also add, that if Goldman or another firm is 1000 up across 10 cent wide accross all strikes, I'd be drooling as either a retail or institutional player. The liquidity and opportunities would be enormous.
I was more or less talking out of my ass on this one. They could in a couple of strikes in a couple of stocks. Nice tight liquid markets are the result of many players having different views. In a five/ten cent wide market, it is inevitable one side is shitty. The guy on the shitty side thinks it is you who is the fool. This past week, I was on a ten cent wide market in CSCO, 20 up. I would have been more but ran into margin limitations. Plenty of free money out there.
