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[RT] Re: Roll of the Specialist



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<P>Doug Munch wrote:
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<FONT SIZE=-1>While it is true that
no one is going to stand in front of a charging bull (or bear) for that
matter and stop the market from moving that is not their job, specialists
on the exchange floor have an obligation to sell/buy when there is a lack
of public orders. Each stock is profiled by the exchange and assigned a
maximum price move on 3000 shares. If the stock moves more than that amount
on 3000 shares, the specialist is subject to regulatory action, repeated
violators will loose the privilege of making a market in that stock and
likely not be assigned any future stocks. Further more the specialist is
charged with rounding the executions on larger orders. If a broker wanted
to buy 10,000 shares and there were 9,300 offered, the specialist usually
sells the 700 to complete the buy order almost without regard to market
conditions. These men and women would consider not doing so unprofessional.
A further obligation of the specialist is to help buyers and sellers find
each other. This function has the effect of removing some of the volatility
from the stocks price action. You have a traffic cop who can 'slow down'
the volatile to ensure that all interested parties are involved should
they wish to be. It is interesting to note that function has an opportunity
cost as the specialist is not able to 'get between' the buyer and seller
and make a spread as they have likely traded with one another on the exchange
floor.</FONT>&nbsp;<FONT SIZE=-1>As far as I know, NASDAQ market makers
have none of these charges.</FONT><FONT SIZE=-1></FONT>
<P><FONT SIZE=-1>NW: The best system is the CBOE market maker system, at
least as it was when I was there.. They may have screwed it up since with
raes&nbsp; and other robotic systmes etc.</FONT><FONT SIZE=-1></FONT>
<P><FONT SIZE=-1>1. market makers are obligated to make at least a 1 x
1 market and there are limits to the bid - ask spread.</FONT>
<BR><FONT SIZE=-1>2. market makers compete to get the orders that come
into the crowd via being the highest big or lowest offer</FONT>
<BR><FONT SIZE=-1>and being the first in outcry. Please keep in mind that
market makers are expected to yell out a TWO sided</FONT>
<BR><FONT SIZE=-1>market. When a broker ask for a market, the market makers
don't know whether the broker will be buying or selling. The NASDAQ market
makers only recently are obligated to make firm markets in a limited number
of issues.</FONT>
<BR><FONT SIZE=-1>3. there is an absolute separation of principle and agency.
In other words, no floor memmber is allowed to make a market in a security
on the same day they represent an order. This elimiinates any possible
confilict of interest.</FONT>
<BR><FONT SIZE=-1>This is not the case with the Specialist system. The
specialist can be both principle and agent. This is also not the case on
the commodity floor, where locals can be both princple and agent in the
same pit on the same day.</FONT>
<BR><FONT SIZE=-1>On the other hand, you can''t beat the futures exchanges
for fast execuations with minimal slippage. (oh oh, that should stir the
pot &lt;G>).</FONT>
<BR><FONT SIZE=-1></FONT>&nbsp;<FONT SIZE=-1></FONT>
<P><FONT SIZE=-1>&nbsp;Hey DROEX, don't you love me now? You're in Captiva,
come down to Naples and buy me dinner. &lt;G></FONT><FONT SIZE=-1></FONT>
<P><FONT SIZE=-1>Exercisingly,</FONT><FONT SIZE=-1></FONT>
<P><FONT SIZE=-1>Norman</FONT><FONT SIZE=-1></FONT>
<P><FONT SIZE=-1>P.S. Why are we whispering with this small type?</FONT>
<BR><FONT SIZE=-1></FONT>&nbsp;
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<BR><FONT SIZE=-1></FONT>&nbsp;&nbsp;</BLOCKQUOTE>

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</x-html>From ???@??? Thu Jan 27 17:38:48 2000
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From: Dennis Holverstott <dennis@xxxxxxxxxx>
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Subject: [RT] Re: Overnight disaster insurance?
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Status:   

Here's a 5-minute chart of the SP futures during the 1987 crash. The
magenta lines are the current CME limit percantages although they
weren't in place in 1987. On Black Monday, there were a couple of
chances to bail with only about a 5% loss from Friday's close and you
could have gotten out most of the morning with less than a 10% loss.
But, if you waited too long, you needed to be capitalized well enough to
wait for the the retraces that happened over the next 2 days. If you
were trading more than about 3:1 leverage and didn't bail early, you
were dead before the first day was over. Even 3:1 would have taken you
out if you hadn't bailed by Tuesday morning. 2:1 would have given you
the option to hang in there.

-- 
  Dennis
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