Subj : Market Action (5 Nov)
To   : Paul Rogers
From : George White
Date : Sat Nov 08 2003 09:19 am


Hi Paul,

On 05-Nov-03, Paul Rogers wrote to All:

 PR> All but two of the NYSE directors have been asked to resign.  I
 PR> suppose reconstituting the Board might help a little, but I'm
 PR> somewhat skeptical.  What I'd like to see changed is its
 PR> "specialist system". The Exchange touts its "open outcry" system
 PR> as a protector of the investor, but who ever gets to do the outcry
 PR> or hear it?  The Main Street investor?  What they don't tell you
 PR> is the floor specialists that run trading in each stock have an
 PR> inherent conflict of interests in their market making.  They get
 PR> to decide how a great deal how to run their "book", how orders are
 PR> filled, hence what prices stocks trade at. Sure they have
 PR> "protective" rules, but whom do they protect?  Main Street or Wall
 PR> Street?  The Exchange is the one that makes most of the rules,
 PR> with some SEC oversight.  The specialists also hold "inventory" in
 PR> the stock "so they can make a market in it if orders become
 PR> unbalanced."  If pressed, I'm sure the Exchange will say that "of
 PR> course they're allowed to make a profit from their buying and
 PR> selling from inventory, if they don't have enough liquidity then
 PR> they can't make the market flow."

The UK financial press is also following the story of the NYSE
changes. There has been comment in the articles about the entrenched
"open outcry" system, suggesting some of the floor traders were using
their priviledged position in holding "INVENTORY" to, in effect, do
legalised insider trading.

 PR> It's simply an entrenched anachronism.  Computers could handle the
 PR> trading and order resolution fairer and more efficiently.  It
 PR> works on the NASDAQ.

It works on all the european stock exchanges as far as I'm aware (and
I believe on all the other major stock exchanges too), the London
Stock Echange changed over years ago, they built a new Stock Exchange
building to cope with the traditional open outcry method, and within
10 years the trading floors were empty, and the building was virtually
empty as all the trading went computer based and the traders back into
the dealers own trading areas (they look like screen farms when
they're shown on the TV shots...).

George

--- Terminate 5.00/Pro 
 * Origin: George's Country Point (2:257/609.6)

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