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James F. Mazzulla wrote:
> I noticed that after you stated "....a buyer and seller is
> all that's needed" you added "we need the exchanges...". I
> agree but you're still missing one element; a third party to
> provide liquidity. They're called locals in the futures
> pits, market makers on a system like NASDAQ and it seems to
> me they're what everyone is referring to (albeit obliquely)
> when "fairness" is mentioned.
Good point. Now, no one's saying that these parties won't continue to play a
significant role. For instance, we can clean up the Nasdaq and force MM's to
compete on the same level as other traders (still not the case), and they'll
still be around. The question of to what degree they are necessary is another
issue. With all traders having the capacity to openly post, this takes on a lot
less significance. Still, though, we want to ensure as high a liquidity as
possible, to keep spreads as tight as we can. However, we ought to have the
same rules for everyone - with the Nasdaq, this means that all posts are fair
game. While this would cut into their action a bit, there isn't any real reason
why making markets wouldn't still be profitable.
> Even if telepathic trading were possible, it
> would be useless if no one was willing to take the opposite
> side.
There will still be someone there to take the "opposite' side though - these
guys make quite a bit of money, and where there is money to be made in the
markets, someone will always step in. There is no real reason why having an
open electronic book would limit the market in any significant way. In fact,
where the Nasdaq is concerned, the opposite has been true as it moves toward
more fairer trading.
> The bottom line is that neither exchanges nor those who make
> markets can afford to provide their services for free. We
> have as much right to demand that as we do to demand that
> Wal-Mart sell their merchandise to us at cost.
True - no one is saying that exchanges need to suffer here. If fees have to be
raised, then fine. In terms of the much better service we would be receiving,
it's hard to imagine how this would not be worth it though.
To the future,
A.J.
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