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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

#121

Post by kolbe »

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…

Don't forget that companies easily get around this by having higher brokerage fees when the brokerage arm and market making arm have the same beneficial owners. Just do what Susquehanna does: instead of filling an order 0.05 too high, fill it at a fair value, and charge a 0.05 fee. Then no other auction participants can better the fill, since all of the money got shifted from a bad fill to a high fee.

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

#122

Post by jfengel »

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…

Any idea how much it could benefit retail investors?

I gather that this arbitrage made large amounts of money a penny or so at a time. Which is to say, your own trades might net small numbers of dollars more -- money you're entitled to, to be sure, but not exactly changing the world.

I could be wrong about that, and either way I've got no love for middlemen providing nothing, not even liquidity. So I'm trying to get a handle on how big a change this actually is for everybody except the high-frequency traders.

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

#123

Post by RobRivera »

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…

this guy litquidity seeks

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

#124

Post by f-securus »

baandang wrote: post #119
seanhunter wrote: post #71

Earlier quoted context omitted.

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

I worry though we are trying to fix something that isn't really broke. My first Scott Trade brokerage account years back cost $7 a trade per side Now I pay absolutely nothing. Every trade I make I think about how this probably won't last. An individual has no problem getting near infinite liquidity on their limit orders with no transaction cost. If someone is getting clipped a tick on a market order, oh well. Don't u…

Do you think near infinite liquidity allows for true price discovery? Do you think paying for order flow gives market makers an advantage over retail?

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

#125

Post by hitpointdrew »

cturner wrote: post #89
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…

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…

>Multi-day settlement is good for market stability. If there is an error, it gets picked up in clearing.

Why is this a good thing? There are consequences to actions, lets just live with that. If you mistakenly order something you didn't mean to the solution isn't to "catch the error" and prevent a transaction from happening, the solution is to make an new entry/transaction that reverses the previous one. If you end up having to eat some cost to reverse the "mistake" oh well, lesson (hopefully) learned you will be more careful next time.

There should be no settling, no clearing, every transaction should be immediate and final.

This would open up the possibility to not have any arbitrary market "open" and "close" times. There should be no need to settle up, clear, reconcile for the day/week etc. All transactions are immediate and final and the market can run 24/7 365.

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

#126

Post by hitpointdrew »

chollida1 wrote: post #92
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…

> 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. Well good news here for you, trades settle in T+2 and have for some time. > That and let's also get rid of any special treatment for the investment industry that retail traders don't have Well that is limited by only the deal you and your broker have. You can send a…

>Well good news here for you, trades settle in T+2 and have for some time.

T + 2 is WAY too long. I click a button to buy/sell, money goes to one party, the stock goes to the other party, transaction is final and complete within milliseconds. That is how it should be.

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

#127

Post by diebeforei485 »

Majromax wrote: post #72
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…

> 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-ti…

I still don't understand why they can't be settled overnight or something.

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

#128

Post by drivebycomment »

mring33621 wrote: post #117
jeffreyrogers wrote: post #115

Earlier quoted context omitted.

They have to execute at or better than the national best bid and offer so you are getting at or better than the price you'd get if you posted a marketable order to an exchange. I don't see how they are front-running.

Oh yes, the old "They have to execute..." I'm sure these nice American businesses are complying 100% with this rule. OTOH, I'm not sure that it's easy/possible to really know what the 'NBBO' is, at any given 'moment'.

FINRA requires retail brokers to make a report on price improvements based on a retroactive analysis vs NBBO. So, yes, they do know what NBBO was, and whether they were truly price improvements or not, and that's being monitored and tracked, and the brokers get yelled at if they violate that.

Pretty much all conspiratorial, "motivational" analysis of PFOF critics on HN are simply wrong. As Matt Levine explains it clearly, from the utilitarian perspective, PFOF is not a bad thing at all for retail investors. Whether it can be even better is a different question and clearly SEC is trying to find that with the new proposal, but as is always the case with a complex system with differently motivated actors, what exactly the new balance point for the new system will be is uncertain.

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

#129

Post by zie »

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…

Most nice brokerages will cover the float for the settlement as long as you don't try to withdraw the money outside of the brokerage. Also it's T+2 days now in the USA at least. So this is mostly a non-issue in practice and has nothing to do with your actual complaint. ACH is T+2, Checks and everything else is T+2 to T+5(some paper checks can take 5 days to fully settle). This settlement, like the other commenters have mentioned is to fix any problems. I've seen giant companies screw up ACH payrolls, that they have to recall every ACH and re-submit. This T+2 is to fix those mistakes. Brokerages screw up sometimes too. T+2 let's them fix those mistakes. Yes automation and technology could make it all instant, but human error still happens, so T+2 is there to fix the human error, without having to reach out and undo transactions that have landed.

No trades are guaranteed because you have to find someone willing to take the other side of the trade. This applies pre or post market. Some brokerages are happy to let you try and trade pre and post market, but that still doesn't mean you can find a buyer or seller to complete your trade, much less trades happen, so it's much harder to fill them. Large investment firms don't really get special treatment here, like you seem to think.

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

#130

Post by rufus_foreman »

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.

>> People care way too much

I agree with this, as an individual investor, from my perspective the most likely thing that happens is that the SEC screws things up.

I started out paying what in today's money would be $50 a trade to buy or sell a stock. So for a $2000 trade, that's going to mean starting out down 5% on trading costs ($50 buy + $50 sell). Now I pay nothing.

Does it matter if I pay $50.01 or $50.005 per share on a trade? No, it does not. Leave it alone and let the brokerages compete, they're not monopolies. I much prefer the current system to even a small risk of having to go back to commissions.

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