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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

#101

Post by maxbond »

arc-in-space wrote: post #88
maxbond wrote: post #24

Earlier quoted context omitted.

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

I'm not saying that people shouldn't be challenged, but that you can do that without punching down. Indeed, without punching.

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

#102

Post by affyboi »

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…

I believe the SIP feed in the US is pretty much the same deal

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

#103

Post by tptacek »

anonymoushn wrote: post #35
tptacek wrote: post #21

Earlier quoted context omitted.

Levine doesn't believe PFOF involves people skimming money from retail investors, if that's what you're implying. Levine's story boils down to: retail order flow is cheaper to make markets for, wholesalers and brokers can split the savings three ways (between retail investors, the broker [via PFOF], and the wholesaler). That's not skimming; that's, like, the operating principle of Walmart.

Levine is entitled to his opinion, but I don't think he has argued that retail investors receive better prices compared to a condition where all of their orders are sent to lit venues and makers who want retail flow have to get it by having top-of-book (or midpoint peg or whatever) orders at lit venues.

It's not so much his opinion as the law. Wholesalers have to improve the lit market price, or else route the order to the lit market. And it's clear how they're able to improve that price! The lit market has to serve institutional traders, who are much more expensive to trade against.

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

#104

Post by bidirectional »

TOR_USER_01 wrote: post #27
tptacek wrote: post #21

Earlier quoted context omitted.

Levine doesn't believe PFOF involves people skimming money from retail investors, if that's what you're implying. Levine's story boils down to: retail order flow is cheaper to make markets for, wholesalers and brokers can split the savings three ways (between retail investors, the broker [via PFOF], and the wholesaler). That's not skimming; that's, like, the operating principle of Walmart.

Matt Levine: > The customers think they have no cause for complaint, because they did better than the NBBO. The whole thing is an institutional equivalent of retail payment for order flow: The partner firms fill the customers at a better price than the NBBO, make some profit for themselves, and kick back some of it to the broker (Coda). https://www.bloomberg.com/news/newsletters/2021-09-23/money-...

Where is the money skimmed from the retail investor there? They beat the NBBO?

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

#105

Post by tptacek »

JumpCrisscross wrote: post #43
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

> comments (laypeople in general) tend to make very confident and very wrong comments on market structure Former equity derivatives trader here. The Levine article linked to is one of the denser accessible discussions on the topic I’ve seen. Also, as a current English speaker, the “truth searching” the comment you’re responding to cites refers to the general process of learning, and nothing specific to market structu…

You, I like.

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

#107

Post by cesaref »

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…

Settlement in Europe is T+2, there's talk of T+1 settlement, but there are complications around some classes of securities, things like ETFs, where the underlying might be in a different country/exchange/timezone with bank holidays and stuff like that which complicate matters.

I'm also interested in this idea that large investment firms can trade out of hours - this has never been the case in any market that i've seen. There are some 24/7 markets though (CME is like this I believe?) so maybe there is a disconnect between the hours offered to customers vs the exchange hours? I suppose the other possibility is that the broker trades the opening auction and doesn't offer this to their customers, but i'd have thought they would simply bundle everything into the auction from overnight.

Back in the day, the UK settled twice per month, with the various brokers having tracked all of the trades for the fortnight then the accounts departments moving the difference once they had agreed the actual total (which of course would never match with a word of mouth + paper based system). It's amazing it worked so well for so long, all basically based on trust and hence why being an exchange member was so important for trading.

The move to a rolling settlement date part of the Taurus/Talisman project in the 1980s. This got cancelled, lots of IT companies had invested heavily to be ready for this got burnt, but what emerged was the less extensive CREST system which is still in use today.

The original move was to a T+5 rolling settlement, which moved to T+3 in the early 2000s and is now T+2.

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

#109

Post by anonymoushn »

tptacek wrote: post #103
anonymoushn wrote: post #35

Earlier quoted context omitted.

Levine is entitled to his opinion, but I don't think he has argued that retail investors receive better prices compared to a condition where all of their orders are sent to lit venues and makers who want retail flow have to get it by having top-of-book (or midpoint peg or whatever) orders at lit venues.

It's not so much his opinion as the law. Wholesalers have to improve the lit market price, or else route the order to the lit market. And it's clear how they're able to improve that price! The lit market has to serve institutional traders, who are much more expensive to trade against.

The law obviously does not say anything about price improvement compared to counterfactuals either.

Are you saying that if makers' profitability at lit venues was greatly improved, they wouldn't compete to offer tighter spreads at all?

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

#110

Post by HWR_14 »

CoolGuySteve wrote: post #100
HWR_14 wrote: post #99

Earlier quoted context omitted.

1) AFAIK, big firms also aren't guaranteed to have their trades resolved in any timely manner after hours. 2) What difference does it make how long it takes trades to settle? I tell my broker what I want. They have it show up in my account. Any 3 days for settlement is handled at no cost to me.

You're indirectly paying the float during that settlement period. There's also a whole clearing industry that you're funding with your fees even though more efficient technologies could mostly eliminate it. Like yeah, it's fun going to fancy restaurants with your salesperson from the clearing firm, but the only reason they can do that is due to massive amounts of rent-seeking. The more I work in finance, the more I t…

I mean, I have no faith that I will somehow make more money if my broker no longer is paying the float. In my estimation, it's likely to result in employees of my brokerage getting a slightly bigger boat and fewer comped meals from salespeople, while leaving my bottom line the same.
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