True Two-Tiered Market
- Posted by DynamicHedge
- on November 29th, 2011
File this one under the legitimization of flash orders. While the Reuters article focuses on the impact to retail investors, this is nothing more than a pay-for-edge scheme for HFT trading firms. At least they’re finally being open about it.
The New York Stock Exchange wants to give retail investors fractions of a penny in better prices when they trade securities listed there.
The plan, unveiled last month, would effectively set individuals apart from funds, brokers and other professionals – who would still pay the publicly displayed prices.
It is an effort to induce retail investors back from trading mostly off-exchange at electronic “wholesalers.” And it means the Big Board is effectively taking on the handful of these wholesale market makers, such as Knight Capital Group Inc and hedge fund Citadel, that have been able to get a first look at retail orders and the opportunity to use that information to aid their own trading strategies.
If the NYSE wins regulatory approval for the plan, it could change the way many orders circulate, and it could mean slightly cheaper trading for Main Street investors.
But that approval isn’t certain given the plan will resurrect a fierce philosophical debate over preferential treatment for some market participants. The U.S. Securities and Exchange Commission has only weeks to decide what to do.
“For the first time in a very broad stroke they could approve the ability of exchanges to discriminate by customer,” said Christopher Nagy, managing director of order strategy at TD Ameritrade Holding Corp, the largest U.S. retail brokerage.
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DynamicHedge is an equities, futures and derivatives trader based on the West Coast. He runs a long/short opportunistic relative-value strategy within a proprietary trading group. More
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