Commentary

Tim Quast
Traders Magazine Online News

We're All HFTs Now

In this guest commentary, author Tim Quast looks back at the history of HFT and how the market has evolved to where many firms now fit the definition of high-frequency trader.

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January 1, 1999

At Deadline

By John A. Byrne

IPO Rule

The National Association of Securities Dealers wants to change how the pre-opening of initial public stock offerings is handled. Seeking to quell criticism that Nasdaq trading practices have contributed to the excessive volatility in recent IPOs for Internet companies, the NASD has approved a rule that would extend from five to 15 minutes the time dealers are allowed during the pre-opening for IPOs. Dealers had previously singled out the five-minute window as insufficient for properly managing orders that pile up in an IPO's pre-opening, and as unhelpful in establishing an opening price. The proposal allows an additional 15 minutes in periods when the market is locked or crossed, where the bids exceed the best advertised offers.

The proposed rule, which must be approved by the Securities and Exchange Commission, follows months of excessive volatility during the debut of Internet companies on Nasdaq. Some online discounters, meanwhile, have implemented their own changes, ostensibly to protect investors from being hurt by dramatic dips on the prices they pay for stocks in early trading of IPOs. Since December, San Francisco-based Charles Schwab & Co. has placed restrictions on the trading of more than a dozen IPOs, requiring customers to telephone in their orders instead of trading the orders online.

NASD Board

Alan Davidson, the maverick securities-industry politico from Long Island, will have his first chance to step into new corridors of power this month in New York. Davidson, one of two independent candidates elected to the board of governors of the National Association of Securities Dealers in December, has the inaugural New Year meeting of the board on January 20 and 21 to vent his well-publicized anger at the NASD.

The second independent candidate, M. LaRae Bakerink, director of compliance at La Jolla, Calif.-based SK International, may not be as visible as Davidson but promises to put up a fair fight like Davidson for small NASD member firms. Both independents defeated NASD nominees for the board. Among the famous representing the public for one year is former president Gerald R. Ford.

Two Acronyms

The National Association of Securities Dealers last month approved a proposal to allow market makers to display a second quote for agency orders alongside their proprietary quotes. Referred to as the agency-quote proposal, it would allow market makers to establish a second trading acronym for agency quotes. A market marker could choose to reflect in the agency quotes, a customer order, as well as institutional-sized working orders. Agency quotes would be available for automatic execution on Nasdaq.

Attached to the proposal is a measure to integrate SOES and SelectNet on an interim basis. The NASD originally filed a proposal with the Securities and Exchange Commission in December of 1997 to fully integrate SOES and SelectNet. The interim integration would accomplish the same goals as the earlier proposal, while maintaining SelectNet as a negotiation system.

Separately, the SEC published on January 5 a proposal filed by the NASD on November 10 to integrate the OptiMark Trading System into Nasdaq. Both proposals are subject to approval by the SEC

Weisel's New Gig

Thomas Weisel, the former chief executive of San Francisco's NationsBanc Montgomery Securities, kickstarted a new merchant-banking outfit this month, reportedly with about 40 banking and equity professionals. He will carry the title chief executive at Thomas Weisel Partners, which will be based in San Francisco. A spokeswoman for the new firm said it plans to have an equity-trading unit running this month. The firm is said to have at least $1 billion in capital, which will be used for investments in emerging-growth companies.

While the spokeswoman declined to identify the new hires, published reports said Weisel recruited Tim Heekin, the former head of global trading at Salomon Smith Barney, to run the new firm's equity and sales-trading unit. Thomas Weisel Partners is also said to have lured a slew of sales traders including Dan Charney, Geoff Heyman, Bill Falk, Richard Gimigliano and Peter Stovell, as well as position traders Peter Gebhardt, Kevin Blair and Weisel's son, Wyatt Weisel.