More theorizing about volatility

By: Ray Pellecchia

File Under: Miscellaneous, NYSE

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Yesterday's post, Debunking the 'uptick rule' theory of why the market is more volatile prompted more conversation and theorizing on the subject. Here's the latest:

Great point by your colleague ray.I remember when the SHO programme began and like Daniel said the Dow marched all the way to 14,000 historic level with it. Just another blame game issue by people who expect the market to always walk straight up. Thanks.

by tony dey on August 14, 2007 1:39 PM

Ray,

Yeah, this whole uptick thing is crazy. Remember February? Back then the uptick rule was still in place.

Markets go up and down.

Anyway, I think everyone is in agreement that the Hybrid Market is responsible for all this volatility. That's what I tell everyone anyway... :)

-DT

by Dinosaur Trader on August 14, 2007 2:08 PM

Thanks for the comments, Tony and DT. DT, I think Daniel's point was that the rule repeal effectively was in place at the time (such as last February) for the top 1,000 stocks, via the pilot program.

DT, I'm also checking a report that the Hybrid Market is responsible for global warming. And to think, it used to be the specialists who got blamed for everything.

An update on the "uptick theory" issue: another colleague e-mailed me with a different view. He believes that the uptick rule *did* have something to do with greater volatility, but it wasn't until we had increased automation (via Reg. NMS and Hybrid) that the repeal began to destabilize the market. So his theory is that the repeal of the regulation + greater automation = higher volatility.

Another interesting theory for this discussion. Will let you know if I get more on this.

by Ray Pellecchia on August 14, 2007 4:15 PM

I'm sure someone's going to do some research on the timing of these market structure changes against the ramp-up in volatility, and that will bring some more facts to this discussion.

Just as I was about to hit the "post" button on this, I see that Jamie Selway weighed in on the subject late yesterday:

Ray:

A quick technical correction to Daniel's post (the 1000 pilot names were drawn from the Russell 3000) and an additional point on the ability to short without price test constraints before full repeal (ARCA hasn't used a "bid test" for Nasdaq names since March 2003).

As for the automation point, I'd point out that Nasdaq has been automated for some time, yet it hasn't experienced increased volatility to the extent the NYSE has. I'd suggest that as people gain experience with automated NYSE trading and Hybrid itself is improved (better information and automation around opens and closes, allowing upstairs traders to use eQuote, and fixing NYSE's router so that it that accesses reserve orders on away markets), things will improve substantially.

In the meantime, kudos to you and your colleagues and the rest of the exchange community for keeping things humming during the past few weeks trading. The capacity demands have been unprecedented.

by Jamie Selway on August 14, 2007 10:05 PM

Thanks for the comments and the kudos, Jamie. I'm enjoying this conversation. Anyone else care to hold forth?

OK, new subject: Following up the same post's rant against misspellings: I just got an e-mail from a company. The subject line was:

"Developing your Personal Influence and Impact and your Presentation skills" courses

(I'm copying that inconsistent capitalization exactly). The e-mail began:

Dear Mr Ray pellechia

In just four words, there's a missing period, a misspelling and missed capitalization, plus it should be "Dear Mr. Pellecchia" or "Dear Ray".

I'm not trying to nitpick; I'm happy to overlook the occasional typo, and I'm far from perfect. But they're looking to *teach* skills, with an intro like that? I read no further.

Today in NYSE History: 15 August, 1945 -- The NYSE was closed for V-J Day, the end of World War II. (NYSE.com) The end of such a war. That must have been one great day.

Phil Rizzuto, Yankees Shortstop, Dies at 89 (NYTimes.com) -- As a lifelong Yankees fan who grew up hearing the Scooter on radio and seeing him on TV, I feel like I lost a crazy-funny uncle. This New York Times piece nicely evokes the man, and the accompanying photo essay is a beauty. I'll add one more anecdote: when Bobby Murcer was here last year, he told me how broadcasting with Rizzuto was full of surprises; Rizzuto would say something like, "This new kid reminds me of that guy who used to play outfield for Anaheim, what was his name, Murcer?" Bobby was then left to scramble to figure it out, live on the air. He was laughing about it still.

It came right through the radio and the TV that the Scooter loved the game, loved the Yankees, loved talking to people, loved cannoli, loved his up-from-nothing-Brooklyn-Queens roots, loved his Cora, loved to laugh at himself. I could listen to someone like that talk forever. Sometimes, it seemed like he would, and almost could. Now he will tell his wacky, meandering anecdotes in a better place. What is the sound of angels laughing?

Tags: New York Stock Exchange, Hybrid Market, NYSE, short selling, uptick rule,volatility, Phil Rizzuto