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

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

#81

Post by pclmulqdq »

vgatherps wrote: post #75
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…

> 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.

This is true, except the key factor is that the price signal eventually reaches the "normal" market when you look at the trading patterns of the wholesalers, mixing it in with the price signals coming from the trades that the wholesaler does for other clients (including their own strategies).

Moving to an entirely separate public information channel means that 100% of the trading activity on the markets (aside from the separate channel) is driven by sophisticated parties. That makes a big difference - for example, during the GME fiasco, there was uncertainty about how much of the activity was retail vs institutional traffic. After the proposed rule, we will know exactly how much of that flow is retail.

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

#82

Post by Workaccount2 »

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…

It's my understanding that the reason for the delay in settlement is to allow for mistakes to be resolved.

Not retail mistakes of course, but mistakes that might impact the people who count (unless your retail mistake impacts someone who counts, i.e. your broker who misfilled your order).

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

#83

Post by carterschonwald »

liotier wrote: post #70
hitpointdrew wrote: post #66

Earlier quoted context omitted.

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…

Could rules such as order matching within coarse-grained time increments level the playing field ? What would the drawbacks be ?

There’s actually 1-2 venues that have launched in the past year that do something like that.

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

#84

Post by cturner »

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…

> Europe has shown that reg NMS is not needed and doesn’t benefit investors.

I don't think Europe has shown this, or should be seen as an role-model for execution quality. The European model benefits national champion exchanges and lazy brokers.

In Europe, all retail flow is forced to Regulated Markets where it directly faces more sophisticated players. There is nothing equivalent to the execution-quality guarantees that RegNMS delivers in the US.

RegNMS ensures a high quality of protection for the interests of retail investors, and is even-handed towards exchanges.

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

#85

Post by yieldcrv »

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 agree, there is so much more activity and things to keep track of in the options market - data wise - and that still settles in 1 day.

Over the past decade, many of the settlement times have been related to the feasibility of data retention capabilities, as opposed to the reality of it being all on top of a slower analog system for re-assigning shares and assets to different owners.

So in this decade I would say its over. 0 to 1 day settlement time.

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

#86

Post by sesuximo »

rr888 wrote: post #79

People care way too much. Brokers used to take huge commissions, now the HFT market makers really aren't as exploitative as people's imaginations believe. Virtu is a good example, its a $3B market cap, less than half the size of Twilio.

Kind of an interesting comparison. According to Wikipedia, virtu is about 1/8 the size. But other than headcount and apparently market cap they seem fairly close by the numbers.

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

#87

Post by seanhunter »

liotier wrote: post #70
hitpointdrew wrote: post #66

Earlier quoted context omitted.

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…

Could rules such as order matching within coarse-grained time increments level the playing field ? What would the drawbacks be ?

The evidence I read (it was 10+ years ago) suggests that rolling auctions reduces intraday price volatility and and reduces standard dev of many measures of transaction cost (eg implementation shortfall).

If you think about this variance since there is a party on either side of the trade, and one will benefit and one will lose out. The downside of reduced variance is you will never gain a “lucky fill” that is much better than you expect. But you will also never get a really bad fill either.

Since the whole purpose of hfts In market making is essentially to try to always be the ones yo get the lucky fills, they will on average do this and everyone else will on average lose out (from high execution cost variance). That’s why I said on net retail investors should benefit from this (I think).

I hope that explanation makes sense.

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

#88

Post by arc-in-space »

maxbond wrote: post #24
tptacek wrote: post #9

Earlier quoted context omitted.

Also: what's "monetary" about them?

Seems pretty clear from context they meant "financial" or perhaps "related to money", I don't think we have to put them on the spot for it. I imagine this is part of the meta-point you're making across the thread that people on HN talk out of their hat about finance (I plead guilty) but I feel like your comment about Money Stuff/"truth searching" was enough, and that asking people to defend their misuse of terminolog…

I agree, but also, maybe some amount of punching down is deserved - there really does tend to be a lot of people speaking in an authoritative tone while being completely wrong in the finance-related hn threads

EDIT: I suppose we can scratch the "finance-related" bit

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

#89

Post by cturner »

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…

Multi-day settlement is good for market stability. If there is an error, it gets picked up in clearing. If there is a catastrophe, the regulator can cancel the day's trading. T+2 would be an improvement, but less than that would create new problems.

Something the US could do to improve its situation would be to change from end of day novation to novation within five seconds of a trade. This might reduce the amount of capital that firms had to post.

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

#90

Post by chollida1 »

carterschonwald wrote: post #83
liotier wrote: post #70

Earlier quoted context omitted.

Could rules such as order matching within coarse-grained time increments level the playing field ? What would the drawbacks be ?

There’s actually 1-2 venues that have launched in the past year that do something like that.

> There’s actually 1-2 venues that have launched in the past year that do something like that.

interesting, i've not heard about this.

Which venues are you referring to that don't just do price time broker priority matching?

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