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I think this is how it happens:
Customer puts in an order to buy 500 shares of ABCD at the market. Customer's broker sends it to its preferred market maker MM1. MM1 does not have this stock in inventory, and he doesn't have any current sell orders from other customers to match and cross this buy order, so he goes out and buys it from another market maker, MM2, and/or some ECN who are currently offering this stock. Then, MM1 turns around and sells it to the original customer.
I watch tick by tick trades and time&sales very closely during the day, and in my experience, this double counting phenomenon has become very infrequent lately. One used to see a lot more of these double-prints about 2 - 3 years ago, but not anymore. In my opinion, the advent of direct-access trading, where one can buy/sell DIRECTLY from/to MM's that are originally offering/bidding, is one of the reasons. There is also the fact that most of the retail discount and/or online brokers all use the same few MM's for trade execution (like MASH, NITE and HRZG basically), so with increased liquidity, these MM's are much likely to cross-match incoming orders in house, rather than going out.
This is just my theory though, and I may be very wrong. Any comments or corrections are welcome.
Best regards,
Levent
-----Original Message-----
From: ChrisPR1@xxxxxxx [SMTP:ChrisPR1@xxxxxxx]
Sent: Sunday, June 04, 2000 11:41 AM
To: realtraders@xxxxxxxxxxxxxxx
Subject: [RT] Double-Counting
Double counting as I see it: It doesn't really happen because there are
actually two trades.
Scenario: Market Maker A is holding a customer limit order to buy 500 shares
of ABCD at 10 - his offer is 10 1/2 for 100 shares; hence his market is 10 -
10 1/2, 5x1.
He receives a sell order hitting his 10 bid for 500 shares - he buys 500
shares from the sell order and sells 500 shares from his original customer
order. Why does 2 500 lots print the tape and not just 1 lot of 500? - There
were actually two trades which took place, not one. Personally I would not
rely on CNBC, much less Tom Costello, for anything, but the above scenario
can potentially refute the myth of double-counting. The www.nasd.com site
has some good historical info on printing of trades but it will require a lot
of filtering out of information. Comments welcome.
Chris
In a message dated 6/3/00 4:08:45 PM Eastern Daylight Time,
kentr@xxxxxxxxxxxxxx writes:
<< Q2. I think this refers to the fact that in some cases, a single trade
can be double counted. This only occurs on the NASDAQ afaik. Tom Costello
who walks the NASDAQ wall on CNBC has said that up to 30% of the NASDAQ
trades are double counted, but I've never seen anyone explain which trades,
which stocks or why it happens. >>
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