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If these people were trying to act like market makers, they were quite
likely adding liquidity to the market. Understanding that all the exchanges
want to keep the outsiders from being able to do what the insiders can do, I
would suggest that they viewed the outsiders activity as a threat. Yes,
there are scads of option classes and strike prices, however I would bet
that this activity was pretty concentrated in a limited set where profit
opportunities were greatest.
Bottom line for the current version of "free enterprise" is that we're in
favor of free enterprise in what we do but we are also in favor of limiting
the free enterprise of anyone who might take a slice out of our gravy train.
In any event, it appears that the exchanges have not only quashed the
perpetrators of this "crime" against the exchanges by charging an
egregiously high fee of $1.20, but stomped on the regular customers as well.
Earl
----- Original Message -----
From: "Mano Appapillai" <manoappapillai@xxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Friday, April 18, 2003 1:54 PM
Subject: Re: [RT] Option order cancellation fees
> Here is the response from a person closer to the Exchanges : There were
some firms that where sending thousands of orders per second and then cancel
and replacing them with a slight move of the underlying. They were
essentially trying to act as market makers. This not only ties up the
resources of the exchange, but also of the brokerage firms and ISVs. Just
think of all the option classes and strike prices they would constantly
readjust and you can imagine the order flow without any revenue generating
trading occurring.
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