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The real justification for open outcry is liquidity and having risk capital
instantly available to moderate market moves and price shocks. Many markets
work well as strictly 'electronic', for others it is the reverse. For
moderately traded markets, electronic trading is bad for most participants
with the exception sometimes being the commercial element.
Electronic markets need several key ingredients to succeed.
First, a widely diversified, large crowd of participants. If a market
operates within a specialized crowd, then having risk capital in the pit
makes all the difference. For such markets to migrate to electronic trading,
they would in all probability loose such risk capital to other more liquid
markets.
Second, markets need a critical mass to generate the following needed to
succeed in the 'E' environment.
Third, markets need some sort of volatility to entice their 'crowd' to
stay.
That the role of floor traders has been given a bad name is an
understatement. But like all professions, it applies to a very few.
Surveillance systems in place at all exchanges guard against almost all of
the past abuses.
For the vast majority of floor traders, the service provided by accepting
risk and providing liquidity is the grease that keeps the wheels turning.
The fact that the 'grease' is available on a split seconds notice in the pit
makes a huge difference over the course of a year in money saved, for all
involved.
To assume that floor traders assume no risk is a grossly uneducated
statement. All market involvement comes with attached risk. I could go on
for several pages on this one topic alone. Suffice to say that floor traders
and locals frequently take it on the chin along with the 'others'. The
difference is that they are 'there' making a market and are able to act on a
moments notice, something that is difficult if not impossible to do when
trading off of a 'box'. This combined with much lower transaction costs
justifies many traders to pursue the life of a local.
The big push for electronic trading is a push originated by both
regulating bodies (for the audit trail), and in many cases by the exchanges
themselves. You see, when an order is traded on an electronic exchange, the
exchange can charge a higher fee. Think this one through. Initially you
would think that reverse would be true, but here is the reasoning. The
market participants save bundles on fixed costs (floor staff, brokerage,
booth rentals and all the related expenses of a floor operation) and it is
these savings that the exchanges try in part to capture.
My conclusion to this is that for some markets, electronic trading is
both a boon and a blessing, for others it is a death knell, and a window to
exploitation.
Have a great day all. Here in the high planes, the mercury is soaring, the
geese are back (two months early) and I'm heading out for a nice brunch with
the family.
Anthony Denis Cattani
----- Original Message -----
From: <felixty@xxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Cc: <realtraders@xxxxxxxxxxxxxxx>
Sent: Sunday, March 05, 2000 8:56 AM
Subject: [RT] Re: Open Outcry or Computer System
> The only justification left for open outcry is for the floor traders to
> make a living off the public specifically the off floor trader wannabees,a
> few hundred dollars with no risk a day is nice way to make a livingfor the
> floortraders, you know. Also lesser fill disputes potential as in real
> time live computer trading,what you see is what you get. Also these so
> called disputes...guess whose side the exchnages or arbitration commitees
> will side
> on/sympathetic and waste everybody's time. Open outcry leave holes for
> floor people to steal no wonder they be figthing tooth and nail against
> full computer trading to the bitter end (last minute) and yes they are not
> there for charity either.
>
> Let's hope someday we'll all be computer based. whether for the local
> exchange only or integrated exchanges worldwide...maybe...just maybe...the
> little guy (whatever his trading/analyzing "religion maybe..") may finally
> get a chance....
>
> Just my opinion...
>
>
> Mervin Yeung wrote:
>
> > Dear Jim & RTs,
> >
> > Do you know which Exchanges in the world are open outcry and which
> > Exchanges on the planet are using computer to do the job? I want to
> > know where I can find the information on this topic. I want to know if
> > computer system is superior to the open outcry. I heard Hong Kong has
> > switched to computer system. However, in America, people in Exchanges
> > prefer to maintain the tradition. Open outcry must have some
> > advantages. Any comments?
> >
> > Thanks in advance!
> >
> > Mervin
> >
> >
>
>
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