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The recent posts concerning open outcry, electronic trading,
and bad fills in the big S&P, once again leave me somewhat
perplexed. I have set forth several questions which I invite
anyone who's been aggrieved, dissatisfied with the current
state of affairs, and/or otherwise interested to answer:
1) Globex has been around for years. The E-Mini contracts
have been a tremendous success and volume is increasing
dramatically. Just a few days ago the Mini SP00 had
single-session volume in excess of 100k. Obtaining a Globex
trading terminal is relatively straightforward and the
expense is comparatively nominal; a simple application plus
$1500 fee, $25k in trading capital, and circa $400/mo for
the terminal lease. Why haven't more S&P traders explored
this option?
2) Obviously, NASDAQ is an 100% electronic. Until recently,
Level II fees were $50/mo. Similarly, until recently,
exchange fees for RT CME and CBOT data, were $50/mo and
$55/mo, respectively. Yet, over the last couple of years,
there have been dozens of complaints about the latter yet
virtually none concerning Level II fees. Why? Along the same
line, traders are paying under $10 (some as low as $4.95) to
trade the E-Mini while the lowest ticket charge I've seen
for NASDAQ trades is $14.95. Again, why does there seem to
be a disproportionate number of complaints? Further, after
having seen some fills in certain NASDAQ stocks (e.g. QCOM),
I'm left wondering why there are so few complaints about
NASDAQ fills.
3) What, precisely, do advocates of 100% electronic
exchanges believe a totally electronic exchange will
accomplish? For example, do they believe an electronic
exchange will set them up with a terminal (or the ability to
connect directly via the internet), provide RT quotes and
execution capability, and charge nothing more than nominal
exchange fees =without= becoming members? Is anyone aware of
an existing electronic exchange (or one in the planning
stage) that operates (or will operate) in this manner? Do
they believe electronic exchanges will completely eliminate
the perceived abuses that occur in open outcry? How? I've
gotten the distinct impression that certain traders equate
electronic exchanges with more opportunities for profit. How
will these opportunities arise? Does anyone believe there
will be parity between 1-lot and 20-lot traders in an
electronic environment (or between marginally capitalized
and well capitalized traders)?
4) There seems to be quite a bit of animosity directed
toward locals. Ostensibly, some traders believe that they're
being "cheated" and/or the locals shouldn't have the
"advantage" that they purportedly enjoy. Thus, the "level
the playing field" mantra. Considering locals endure the
rigors of trading in the pit on a daily basis and have a
rather high overhead compared to screen-based traders, how
is the playing field "un-level"? Considering almost everyone
who trades, but is =not= a local, has the option to become a
local (i.e. there are few barriers to entry), why is there
so much resentment? Conversely, why is there so little
resentment directed toward NASDAQ MMs (or, for that matter,
NYSE specialists)? Lastly, considering how difficult it is
to scalp in the pits as a result of the fierce competition
between locals, why would anyone attempt to scalp from
off-the-floor?
Although I can understand the desire to eliminate the
"middle-man", I can't quite figure out how to eliminate his
function =nor= how an electronic exchange, merely by virtue
of being electronic, would be able to do so. If anyone has
any thoughts on these issues, I'd love to hear them.
Jim
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