It looks like the nyse has no intention of making things better. Giving more people the ability to trade with a algo will only make the quality of the market WORSE.

josh

by josh on July 28, 2008 11:02 AM

Josh -- I ran your comment by Mike Rutigliano, and this was his reaction:

Every market participant has an algorithmic ability that until last week brokers did not have. How is leveling the playing field by providing floor brokers with this capability a bad thing? A few points:

- These are uniquely constructed for the NYSE floor broker.

- They are designed to complement functions brokers currently perform by adding automation to their execution choices.

- Customers who use floor brokers have expressed their desire that they be better equipped.

- The algo ability to compete with and peg to the NBBO is a benefit to all.

- When combined with information technologies like Block Talk, customers have even greater choices to find and access liquidity.

I certainly understand the frustration some have with today's highly automated market environment, but floor broker algos is a logical reaction to this reality, not a cause.

by Ray Pellecchia on July 28, 2008 12:26 PM

Completely agree with Josh. The NYSE needs to start making a market so there is not a need to "Locate Deep Liquidity".

by Ron on July 28, 2008 1:16 PM

I understand his response and I can not disagree with him if the nyse market is going to stay the way it is. My point is that the more automatic and computerized the exchange becomes, its quality suffers.
I would love to see post's like this
- nyse taking steps to stop oders from backing away
- nyse taking steps to make it possible to get price improved
- nyse taking steps to bring back its market share and structure by fighting the sec to repeal reg nms(in my opinion the main problem)

But these are just pipe dreams it seems.

Ray, I do appreciate you passing on my comment.
Hopefully one day i will have a positive post.
I pray that day comes soon.

Thanks,
Josh

by josh on July 28, 2008 2:20 PM

Josh, Agreed.

You at least get answers to ypur posts.

by jt on July 29, 2008 8:23 AM

I would actually like to thank the nyse for its pursuit of innovation, automation, and disintermediation. Driving down transactional costs for the average investor is a win for the majority. Personally, I cannot figure how the e-brokers are still charging $5-10. I take great comfort in knowing that day traders, brokers, and hedge fund managers are finding it ever more difficult to rip off the public.

by Average Investor on July 29, 2008 12:13 PM

In my opinion, price improvement is key. Best price execution across all ECN's and NYSE would make the market much more efficient. All investors have to remember, when looking for block liquidity, this is a zero-sum game. For the buyer to be right the seller has to be wrong, and unless it's an efficient market, you might not be able to find someone willing to take the opposite side of your trade all at once.

Providing best price execution would be an improvement because it would prevent orders from backing away, and as a result, reduce the need to algorithmic trading if you knew that sending a market order would grab the best prices across all exchanges. At the same time that would eat away at the NYSE's Arca profits to give business to Island so it will never happen. Having a fragmented market does nothing but allow orders to back-away and creates an inefficient market.

by anomynous on July 29, 2008 12:22 PM

Average investor,

You tell me how a day trader has ever ripped off anyone. All daytraders do is add volume and liquidity to the markets.
There have been no changes in the recent past that have helped "the average consumer". I would love to know what you feel has happend that has been a benefit to you.

by josh on July 29, 2008 1:42 PM

"I take great comfort in knowing that day traders, brokers, and hedge fund managers are finding it ever more difficult to rip off the public."

I agree with Josh. Average investor, you're accomplishing nothing besides showing ignorance through that statement. There is no direct interaction between day-traders or hedge-funds and the public outside normal, legitimate, trading in which both parties know what is at stake. As long as the rules of the exchange are being followed, neither of those parties are ripping you or the public off, and the SEC is there to ensure of it. If you, or anybody else, does not like the way supply and demand works in the markets, I suggest they find a different place to put your money. If you consider your broker to be ripping you off in fees or execution, that's your subjective opinion and you should probably find a new broker. And if you just take pleasure in other people's dissatisfaction over services they're paying to receive, knock yourself out.

by anomynous on July 29, 2008 2:21 PM

Josh,

Algos add volume and liquidity to the markets and they don't complain like you. Just my point.

by Average Investor on July 29, 2008 2:31 PM

Anonymous,

To clarify, I meant the latter of the two. Providing a service or function which adds little value and charging exhorbitant fees and commissions is what I meant by "rip off".

by Average Investor on July 29, 2008 2:53 PM

Last comment for the day
algos manipulate the markets and trade volume with themselves. Watch a stock for 5 minutes and you'll understand what i am talking about. I love hearing comments like yours, because it shows me that people do not know whats going on.

by josh on July 29, 2008 3:21 PM

Final comment as well. This has been fun.

I have neither the time nor the inclination to watch a stock minute by minute. I know the price will vary (perhaps wildly at times) and I just do not care. When a stock price gets in my range, I place a limit buy order. Will the price be lower tomorrow? Maybe. It may be lower next week and next month...but ideally in 5-10 years it will be much much higher. Transaction costs are important because the investment amounts per order are smaller.

That I believe is the simple mindset of the average investor.

by Average Investor on July 29, 2008 4:24 PM

Average Investor, You view point is obviously much different from many of us who rely on the NYSE/Hybrid system to make our living on a daily basis. That being said, those of us who trade 200K - 1 million shares per day will be much more critical of any flaws in the Hybrid. We really want to see the improvements that Josh previously stated not to "rip off" the public but to earn a living and actually add value to the market place by providing volume and fees to the exchange.

by tony dey on July 29, 2008 6:11 PM

Average Investor -- I understand your sentiment and don't blame you for railing against the problems Wall Street has caused, but I would caution you against generalizing. The vast, vast majority of people in the securities business are honest and deal in good faith, whether on behalf of customers or themselves. As you can see, those who comment on this blog have strong views about how the market works and should work, and although I often disagree with them, I think they make those comments with good intentions. You see it as whining; I see it as feedback.

By the same token, I would suggest that different people want different things from the market at different times. A trader might not need intermediation most of the time, but when he or she has a large, complex, market-moving order, you can bet that they benefit from having people on a trading floor to act as their agent or conduct an auction to discover best price. We're looking to provide both high tech and high touch here, in better balance than they are now. NYSE is committed to being open to all types of customers and strategies.

Josh -- I honestly hope your prayers are answered, too. On your wish list: more price improvement is a central goal of our current proposal; [comment updated -- RP] and if you want to get Reg. NMS repealed, I suggest writing to the SEC if you haven't already.

Tony -- I hear you, as always. To both you and Josh, I know you're tired of hearing me say we're working on it, but you know we are, and I'm tired of saying it myself even though I know it's right. These changes take a long time in our highly regulated environment. I see that the SEC is now publishing our proposals, so we are moving forward.

JT -- I try to respond whenever I actually have something meaningful to add to the conversation, which isn't always, and I have to say, you often don't make it easy. I looked up your last comment. When you asked, "DO YOU GUYS WATCH THE WAY STOCKS TRADE????" and whether we're OK with the problems you cited, forgive me for thinking those were rhetorical questions. Sometimes I just let people have their say. But as you know, no, we're not satisfied with the way things are; we're never satisfied. That's why we're proposing to change things.

To all, thanks as always for writing.

by Ray Pellecchia on July 29, 2008 8:02 PM

Thank you Ray. I think the most important thing to remember is no matter how we all agree/disagree we all want the NYSE to be a better all-around place to trade. We appreciate this blog.

by tony dey on July 30, 2008 4:38 PM

I'm interested in the line in the press release, "All algo strategies will trade on parity, providing the ability to match on every trade." Is this functionality that is available to off-floor brokers? If not, doesn't it put non-floor broker algos at a competitive disadvantage? For example, why would someone use a Credit Suisse or Goldman Sachs algo if it lacks the ability to trade at parity?

Also, was an SEC filing made for this? If so, can you please post a link to it?

by Program Trader on July 30, 2008 8:35 PM

Program Trader -- Thanks for your questions. I ran them by Mike Rutigliano, and here's how he responded:

"Non-floor brokers will have the ability and opportunity to make their algorithms available to floor brokers via their hand held devices. So whether it's the two firms you mentioned, or any third party for that matter, we have created an infrastructure to support that capability.

"Parity is a unique differential benefit in the NYSE market structure. There are different parity groups. The book, comprised of DOT orders, has always been on parity and that will continue. So orders, algorithmic or otherwise that come into our book in the order they are received, are traded on parity with other parity groups. Floor-broker algos are simply an automated extension of that parity structure. Floor brokers have been the only market participants without an algorithmic ability. Our goal with this initiative is to provide customers who continue to view the NYSE trading floor as a value proposition, with greater and more flexible execution choices.

"Since there was no rule change or new rule involved in this initiative, there was no SEC filing."

by Ray Pellecchia on July 31, 2008 6:36 PM

'To be or not to be, that is the question.'

Who in your PR department used a Shakespeare reference three weeks prior to earnings being released. See, The comedies require and explanation of the 'mistaken identities.' The Tragedies are never forgotten and always quoted.

As a long time shareholder, I hope not to be a hero in your PR department, tomorrow.

by Padawan_ms on July 31, 2008 6:46 PM

'twasn't me, Padawan. I just stick with quoting the classics -- Dylan, Lennon, Neil Young etc. But thanks for the literary lesson.

by Ray Pellecchia on July 31, 2008 7:08 PM

Ray:

Thanks for the quick response about parity. But what I'm specifically interested in is the ability to match. This is an aspect of parity that I don't think is available off-floor.

For the less-informed among your readers, what I'm referring to is the ability of floor brokers to buy (sell) stock at the bid (ask) price even if their order wasn't placed first in line. For example, if the market is $20 bid and a retail order is submitted to buy 200 shares at $20, if a market order to sell 200 shares is received, a floor broker can buy 100 shares at parity even if his order was received after the retail clients'. Therefore the retail guy only gets 100 shares of his desired 200 shares and the floor broker gets 100.

Is this your understanding of how the system works?

by Program Trader on August 1, 2008 6:23 PM

Program Trader -- Thanks for the follow-up question. I again checked with Mike, and here is his response:

"I would like to think that our readers are in fact very well informed, thanks to the hard work of my colleagues. That said, you must already know then that our allocation model has always rewarded the first order in the Best Bid or Offer, also known as the setter. This facet of market structure is known as priority and is available to ALL participants.

"In your scenario, there is already a priority bid ahead of your buy order. Assuming, however, that your order to buy 200 shares was first and thus established priority, absent a floor-clearing event, it would be filled before anyone else participated.

"As I mentioned to you in my earlier response, orders sent to the book via DOT, whether by off-floor or on-floor brokers, in the order they are received, are entitled to parity since the book gets a parity slice. Parity through a floor broker continues to be an additional value proposition available to all market participants. As a result, NYSE customers have execution choices that no other marketplace can offer.

"I hope that clears it up for everyone."

by Ray Pellecchia on August 5, 2008 10:13 AM