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Jim,
You make many good points... and I'd agree with much of what Bill Wynne had to say. I'd add the following:
1.) All markets are going electronic, not just securities markets. The idea of eliminating the "middle-man" is in the process of transforming our economy. So the trend toward electronic exchanges is, in my view, just part of a broader overall trend toward electronic markets for *everything*.
2.) Much of the resentment directed toward locals is, I think, the result of uncertainty. People are uncertain whether the price they got was fair. By having complete visibility of prices (NASDAQ) or by trusting the system if you don't have the order book (GLOBEX if you don't have a terminal) people become more comfortable about fairness in electronic markets. Also, the electronic audit trail is much cleaner.
3.) I think that the big attraction of electronic markets (including non-securities electronic markets) is the potential for "seamless" matching of buyers and sellers - across exchanges, across time zones, and across continents. This can be done only electronically. The promise of electronic markets is access, from the comfort of your armchair, to markets all around the globe, 24 hours a day, with the certainty of fair order matching and a clean audit trail.
All the best,
OM
---- you wrote:
> 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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