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SEC set to propose rules that would squeeze stock-market middlemen

wsj.com

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Re: SEC set to propose rules that would squeeze stock-market middlemen

#71

Post by seanhunter »

hitpointdrew wrote: post #66
seanhunter wrote: post #56

As someone who used to work in execution brokerage, this rule change seems on net to be good news for retail investors and bad only for folks like citadel and robinhood.[1] In the wake of flash crash there was a fair amount of research suggesting that rolling auctions (rather than continuous order matching) are net positive for almost everyone except HFTs who exploit market microstructure. In my view they should also…

IMO the whole system needs to be overhauled. With today's tech there is no reason that trades can't be immediate, the fact that it takes 3 days to "settle" a trade is absolutely beyond ridiculous. That and let's also get rid of any special treatment for the investment industry that retail traders don't have (for example as a retail trader, I can trade in the pre or post market but if I do my trades aren't guaranteed…

I quite agree. It should absolutely be a level playing field for everyone as far as possible.

Re: SEC set to propose rules that would squeeze stock-market middlemen

#72

Post by Majromax »

hitpointdrew wrote: post #66
seanhunter wrote: post #56

As someone who used to work in execution brokerage, this rule change seems on net to be good news for retail investors and bad only for folks like citadel and robinhood.[1] In the wake of flash crash there was a fair amount of research suggesting that rolling auctions (rather than continuous order matching) are net positive for almost everyone except HFTs who exploit market microstructure. In my view they should also…

IMO the whole system needs to be overhauled. With today's tech there is no reason that trades can't be immediate, the fact that it takes 3 days to "settle" a trade is absolutely beyond ridiculous. That and let's also get rid of any special treatment for the investment industry that retail traders don't have (for example as a retail trader, I can trade in the pre or post market but if I do my trades aren't guaranteed…

> With today's tech there is no reason that trades can't be immediate,

Liquidity is a good, non-technological reason that we may not want trades to be immediate.

Consider how the price is found at market-open: buy and sell orders are batched into the opening auction, then the exchange finds the single price that results in the most matching orders. All execute at that price.

Contrast that with the binary, point-in-time matching that happens during the day. Here, the order book sits there waiting for someone to match an offer. It leads to perversities like "iceberg" orders (that disguise the true size of the order by posting only a small amount) and market-making firms that will really buy a little bit above the bid and sell a little bit below the ask but hide that for strategic reasons.

Trade settlement times might be silly, but that's a back-end implementation detail relevant mostly to day traders; it has little to do with the price discovery part of the market.

Re: SEC set to propose rules that would squeeze stock-market middlemen

#74

Post by blibble »

snowwrestler wrote: post #65
koolba wrote: post #7

Earlier quoted context omitted.

What’s wrong with dark pools? The name is meant to conjure up some evil mental image, but it’s just two or more parties that want to offload / onload some stock without impacting the market. It’s no different than telling your neighbor you’re willing to sell your house for $X without publicly listing it.

It’s worth pointing out that, in most U.S. localities at least, real estate transactions become public knowledge once they close. You can go look up, on a government website, how much a property sold for even if the transaction was conducted privately. So price discovery is still possible. I don’t think there is an equivalent public reporting mechanism for private “dark pool” transactions of financial instruments. An…

dark trades are on the consolidated tape

and have to be reported within 10s of being fully filled

Re: SEC set to propose rules that would squeeze stock-market middlemen

#75

Post by vgatherps »

pclmulqdq wrote: post #55

We already see a LOT of auctions running in the options markets, and trading these auctions it is one of the profit centers of market makers. It turns out that speed is still a factor in a stock market auction, and you can still have designated market makers that are guaranteed to get a cut of each auction. I'm not sold that this move will actually result in much better prices for customers on average, but it will ce…

> We already see a LOT of auctions running in the options markets, and trading these auctions it is one of the profit centers of market makers. It turns out that speed is still a factor in a stock market auction, and you can still have designated market makers that are guaranteed to get a cut of each auction.

The complexity and fragmentation as well - you can preferentially do auctions at venues you have an advantage on, and bully the venues away from fixing whatever you exploit by threatening to take away flow.

> In options, there is the suspicion that the presence of a lot of auctions probably results in wider spreads, which we could see as auctions make it to the stock market, too. If all retail order flow goes into the market through special channels, the only trading remaining in the "normal" system will be from sophisticated traders, who you don't really want to trade against.

Effectively all retail flow already goes through even more cutoff special channels? But I agree with the point, this seems like adding a tremendously complex game instead of just shrinking tick sizes. At least in options, you tend to have much wider spreads. But the fact that plenty of stocks trade at min tick is a sign the spreads could naturally be tighter.

Re: SEC set to propose rules that would squeeze stock-market middlemen

#76

Post by kasey_junk »

seanhunter wrote: post #56

As someone who used to work in execution brokerage, this rule change seems on net to be good news for retail investors and bad only for folks like citadel and robinhood.[1] In the wake of flash crash there was a fair amount of research suggesting that rolling auctions (rather than continuous order matching) are net positive for almost everyone except HFTs who exploit market microstructure. In my view they should also…

The auctions we can observe (open/close) do not disadvantage micro structure traders. Quite the opposite they are where the most games are played. I don’t know if that’s because it’s open/close, because it’s different to regular matching or if it’s intrinsic to auctions.

My personal opinion is that this change will have lots of unintended consequences and it may even cause a shuffling of who are the big players. But it likely won’t mean the end of HFT microstructure trades. At least I hope not because I believe that would lead to higher spreads and less liquidity.

Re: SEC set to propose rules that would squeeze stock-market middlemen

#77

Post by blanketlamp »

jason-phillips wrote: post #69
vgatherps wrote: post #42

Earlier quoted context omitted.

HN comments (laypeople in general) tend to make very confident and very wrong comments on market structure

> HN comments (laypeople in general) tend to make very confident and very wrong comments on {X} Yes, it's annoying. From conspiracy theorists to supposedly smart people with PhD's, I'll catch them in a fiction. "You just made all of that up," I'll say, to which they reply with handwaving and equivocation. Why are we so reticent to be comfortable with our own ignorance and hold our tongue?

I think it’s perfectly reasonable to offer an opinion borne out of reasonable ignorance, but the critical part missing most of the time is that you have to be open to actually being corrected without becoming combative.

Too many people have their ego and sense of self worth wrapped up in being correct on the internet, regardless of the topic.

Re: SEC set to propose rules that would squeeze stock-market middlemen

#78

Post by mrep »

svggrfgovgf wrote: post #49

From Levine: "Payment for order flow sort of created the zero-commission retail-brokerage model, but it’s not really necessary anymore. You can run a profitable retail brokerage on net interest margin, without charging for trades at all." So what everyone should be complaining about is not PFOF, but "net interest margin". In other words everyone should be complaining about the brokers not paying enough interest on th…

Sounds like you should use a better brokerage. Vanguard defaults to putting all my money in Vanguard Federal Money Market Fund (Settlement fund) with a current 7-day SEC yield of 3.8%. They do charge me a 0.11% fee though.

Re: SEC set to propose rules that would squeeze stock-market middlemen

#80

Post by DisjointedHunt »

runeks wrote: post #12

> Requiring such auctions would be a big change. The SEC says brokers send more than 90% of marketable orders to wholesalers. Unlike exchanges, which display price quotes publicly and allow a variety of market players to attempt to fill orders, wholesalers trade directly against the incoming retail flow, an arrangement that effectively prevents other market players such as institutional investors from interacting wit…

This does not address the inherent conflict/manipulation possible with the HFT relationship:

1.Imagine a Robinhood user places an order to sell 100 $GME

2.Robinhood doesn't send it to an exchange first, it holds onto it for a few milliseconds.

3.Meanwhile, Citadel/Virtu or others execute orders below what the bid would have fetched a few milliseconds ago.

4.Now, the order is routed to the exchange above what the market was trading at and thus certainly goes unfilled.

5.300 milliseconds per the regulation elapses and the order comes back to the HFT firm to fill.

The bigger issue here is the nepotism in providing wholesale prices to HFT firms. The stock exchanges do this and so does Robinhood. In an open and competitive market, the playing ground should be regulated to be equal for all.

Or infact, as motorsports participants know very well, the cost of access to markets should INCREASE with size, not decrease. . . If you're the present Formula1 team winner, you pay SIGNIFICANTLY more to enter next years championship than the last place team.

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