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The broker will have to supply it with the trade confirmation. The SEC has
postponed implementation a couple of months. Some people expect that the
industry will lobby to continue to get the SEC to postpone implementation.
neo wrote:
> "If the Securities and Exchange Commission (SEC) has its way, all the
> debates
> will soon end. In mid-November 2000, the SEC passed a pair of rules that
> mandate disclosure of execution rates among market centers, and disclosure
> of routing practices and payment for order flow among broker-dealers."
>
> Where can we get this information?
>
> neo
>
> -----Original Message-----
> From: owner-metastock@xxxxxxxxxxxxx
> [mailto:owner-metastock@xxxxxxxxxxxxx]On Behalf Of David DeFina
> Sent: Wednesday, April 04, 2001 4:22 PM
> To: metastock@xxxxxxxxxxxxx
> Subject: RE: Discount Stock Broker Evaluation
>
> Is your broker getting you the best price?
>
> By Jeff Ponczak
>
> As direct-access trading has slowly gained more of a foothold in the
> mainstream marketplace, its proponents have not been shy about touting it as
> far superior to using a standard online broker.
>
> In a nutshell, direct-access trading (using firms such as CyBerCorp)
> eliminates the middleman and sends buy/sell orders directly to the exchange.
> In many cases, an instant execution is possible. On the other hand, placing
> an order through a standard online broker (e.g., E-Trade, DLJ) is akin to
> sending that firm an e-mail. Upon receiving the order, they send it to a
> third party for execution (see “The Direct Connection,” Active Trader,
> August 2000, p. 28).
>
> While the entire process at a standard broker often takes only a few
> seconds, sometimes the market can move significantly in that period of time,
> especially in a volatile stock. Therefore, the price a trader sees when he
> or she places the “send” button is not necessarily the price at which the
> trade will be executed. That, claim the direct-access brokers, is where they
> have the biggest advantage.
>
> If the Securities and Exchange Commission (SEC) has its way, all the debates
> will soon end. In mid-November 2000, the SEC passed a pair of rules that
> mandate disclosure of execution rates among market centers, and disclosure
> of routing practices and payment for order flow among broker-dealers.
>
> The new rules go into effect on April 2. When the first set of data comes
> out, traders will be able to see whether orders sent through a particular
> ECN are executed at a better price than those routed to an execution firm
> such as Knight Trading. Or, whether trades sent through a direct-access firm
> such as Tradecast are routed to the best price more often than those sent
> through Ameritrade or Charles Schwab.
> “I think that what is going to end up happening is that the individual is
> going to take a look at all the different brokers,” says Peter Stolcers,
> director of marketing for Terra Nova Trading. “The [traders] that are
> concerned about the types of fills they are getting are going to evaluate
> their broker and how often they route to a particular area and how well that
> area or market center actually executes the trade. Then they are going to
> see the other market centers’ performance. If they feel that they can
> consistently be getting a better shake somewhere else, then ultimately the
> only way for them to route to that market center consistently is to engage
> in some kind of direct-access platform.”
>
> For example, the study may show that Broker A is directing 80 percent of its
> trades to Market Center A, who is getting the best price 50 percent of the
> time. If Market Center B is getting the best price 90 percent of the time,
> that may cause traders to switch brokers to one that is consistently sending
> its orders to Market Center B.
>
> However, while the information will now be available for everyone to see, it
> won’t necessarily provide all the answers. There are numerous reasons a
> particular broker would route an order to a particular center, and the
> disclosure numbers will only provide the tip of the information iceberg.
>
> “The individual traders still have to roll up their sleeves and make the
> interpretation on whether or not they feel their brokers are really
> searching out the best possible price, or whether they are just routinely
> routing to a particular market center and just taking as gospel the fact
> that [the market center] tells [the broker] they offer the best prices,”
> Stolcers says. “That to me is the true issue.”
>
> Also, best execution is not necessarily the top priority for all market
> participants.
>
> “Giving investors more information is always a good starting point,” says
> Stuart Kaswell, senior vice president and general counsel of the Securities
> Industry Association. “What we did not want to have happen was for people to
> misunderstand what these numbers mean so that they think they mean more than
> they actually do.
>
> “There could be 100 reasons why you pick a marketplace, but defining best
> execution is a little bit like defining a best meal,” he says. “When you’re
> in the mood for a pizza, the best steak around doesn’t matter. If you’re an
> individual investor, and all you’re looking for is to get rid of 100 shares,
> the thing you may value the most is speed. You might not be worried about
> opportunities for market improvement. You would like it, but given the
> choice you may want speed more than anything. If you’re a major institution
> and you’ve got 1 million shares, speed is the last thing you want. You need
> somebody who is going to work your order and make sure it doesn’t have an
> impact on the market.
>
> “The (execution) statistics are not like airline on-time arrival data,”
> Kaswell says. “It’s not black and white.”
>
> Much has been made of SEC Chairman Arthur Levitt’s statement in July 2000
> that 85 percent of Nasdaq market orders were being routed to markets that
> don’t have the best price. That doesn’t automatically mean that the orders
> were being executed worse than the best price (known as a trade-through),
> just as routing an order to the market center that does have the best price
> doesn’t automatically mean a trader will get that price.
>
> “Even with the algorithms of the ECNs (Electronic Communications Networks),
> which automatically route to the best price, by rule and regulation a NASDAQ
> market maker has 20 seconds to respond to the order,” Stolcers says. “So
> even though he was the best price at that particular snapshot in time and
> even though the order was routed to that best price at that particular time,
> in 20 seconds there could be a better offer that enters the marketplace and
> gets filled at a better price. So even though you route it to the best
> price, you don’t necessarily get the best execution.
>
> “If there were rule changes where the NASDAQ market makers had to
> instantaneously honor the market and there wasn’t any latitude for that to
> happen, you could pretty much say if it routes anywhere in the open market,
> it will be the best price because it executes instantly,” he explains. “When
> the order is executed within the ECN order book, if they were showing the
> best price and the order was routed there, you would have a high degree of
> certainty in saying that was the best [execution].”
>
> Of course, not everybody desires more information — or for that matter
> understands it. A segment of the trading population (albeit a segment that
> is more accurately described as investors) likely doesn’t understand the
> difference between direct-access and standard online brokers, and therefore
> will likely not be able to make heads nor tails of the information requested
> by the SEC. And, the most active traders who would likely benefit the most
> from the disclosure are in almost all circumstances already using
> direct-access brokers.
>
> It’s been mentioned over and over — on a trade of 100 shares, getting an
> order executed at one-eighth worse than the best price costs $12.50. For the
> short-term trader making numerous traders per day, that’s suicide. For the
> investor making five trades a year and holding stocks for an extended period
> of time, it’s insignificant.
>
> Plus, as Kaswell points out, the responsibilities of a broker-dealer aren’t
> changing because of the rule.
>
> “As this [rule] adds public awareness to the discussion, that’s absolutely
> fine,” he says. “But you must remember that brokers have long had a duty of
> best execution to their customers, and the regulators have been very
> vigilant about saying to broker-dealers during inspections, ‘And you’re
> routing to this marketplace why?’ If you aren’t in a position to defend, you
> ’re going to have some explaining to do. The more [information] the merrier,
> but has the broker’s duty of best execution been there as long as there has
> been agency law? Yes. There’s nothing new about that.”
>
> In today’s litigious times, a market center that routinely executes at less
> than the best price would surely catch the eye of a dollar-minded securities
> lawyer. The SEC anticipated this, adding a provision to the rule that the
> information disclosed could not be used as the basis for a lawsuit.
>
> Likewise, the rule isn’t intended to make any particular broker or market
> center change the way they operate. However, it is certainly possible that
> some brokers will reconsider their routing practices (and some market
> centers their execution practices) if the findings lead to customer
> backlash. The end result could be a reduction in the number of
> trade-throughs, although Kaswell would like to see further steps being
> taken.
>
> “We think market linkages and a market-wide trade-through rule are the next
> logical step to move forward to prevent trade-throughs,” he says. “The SEC
> is doing good work on the linkage issue in the options market. We would like
> to see some of that good work in the equity part of the business so there
> would be better linkage among the markets, and that would lead us quickly to
> a trade-through rule. That’s where I think we should be headed.”
>
> -----Original Message-----
> From: owner-metastock@xxxxxxxxxxxxx
> [mailto:owner-metastock@xxxxxxxxxxxxx]On Behalf Of Frans Derksen
> Sent: Apr 04, 2001 10:48 AM
> To: metastock@xxxxxxxxxxxxx
> Subject: Re: Discount Stock Broker Evaluation
>
> Please explain: The difference between direct access brokers and
> web-brokers.
>
> Thanks,
> Frans
>
> At 09:25 4-4-2001 -0700, you wrote:
> >Save yourself a lot of frustration and losses and go to a direct access
> >broker that supports realtick or something similar. TerraNova,
> >EquityTradingonline, Cybercorp spring to mind as good ones, although since
> >Schwab bought out Cyber, their reliability has been going downhill and
> >their commissions haven't gone down, so the first two are probably better
> >bets. Unless you plan to trade purely on end of day data and don't care
> >as long as you get filled within $1 or so of your target price, even the
> >worst direct access broker is infinitely superior to web brokers.
> >
> >At 07:01 AM 4/4/2001 -0800, you wrote:
> >>I am thinking of using a discount firm to trade on the internet. I would
> >>appreciate any pro and con opinions and experiences of using ETrade vs
> >>Ameritrade vs TD Waterhouse as a discount broker. Schwab is not to be
> >>considered. Any other firm suggested could be considered.
> >>If the MS members feel that the response is not MS related you can email
> >>me directly at linoaalessi@xxxxxxxxxxxxxx
> >>Thanks and successful trading
> >>Lino
> >
> >
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