Quote from clearinghouse:
I have to read the article again, but if the freeze period is only a few minutes, when it unfreezes AND the move was warranted because of fundamentals, who is going to want to be on the bid?
If the move wasn't due to fundamentals, the fast players will probably just pop the stock immediately out of the band. This would create a short-term disincentive to be on the offer.
If the move was due to fundamentals, the band-halt gives everyone, slow and fast, a reason to cancel and push their bid quote way down on the unfreeze. Whereas, an "uninformed" pure liquidity provisioning algorithm that doesn't pay attention to fundamentals could possibly still offer liquidity under current scenarios, this lockout provides a strong indicator to just stop algorithm buying for the next few minutes -- or let MMs adjust the bid to be so low that takers would get hurt severely by the spread.
Am I correct in this thinking? It seems like the bands would become really volatile and illiquid on one side, depending on interpretation of the fundamentals. If anything, it'll give market makers time to make substantial adjustments to whatever bias is guiding their algorithms. This is time they wouldn't have had before.
Maybe that's why Knight Capital's guy is in the article talking it up as a good thing. His angle must be that either he thinks it'll calm retail investor nerves, or that it'll help his market making division avoid more losses from fundamentally informed traders.
