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Tim Quast
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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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June 30, 1999

Price Improvement' Dust-Up

By Staff Reports

Pricing competition among brokerage firms turned itself into a dust-up in recent weeks for two rivals offering "price improvement" on Nasdaq trades.

In the end, Knight Securities said it beat Bernard L. Madoff Investment Services to the starting post. Claiming the laurels, though, is somewhat academic. Both firms started providing price improvement - executing trades at the mid-point between the bid and offer - within a month of each other. Knight Securities rolled out the new service May 25, while Madoff started late last month.

Although Knight Securities and Madoff are unlikely to be the last market makers to provide price improvement, the headlong rush to pitch their product made interesting drama.

"Knight is the first market maker to implement mid-point pricing, a valuable change in the execution standards for the retail investor," said the Jersey City-based Nasdaq unit of Knight/Trimark Group in a press release issued on June 1.

"We beat Madoff by a month," a Knight official noted in an interview.

A call to an official at Madoff was not returned at press time. Bernard L. Madoff, a principal at the firm, was travelling outside the U.S. and could not be reached for comment.

Both Knight Securities and Madoff will provide price improvement for all market and marketable limit orders during the preopening and opening session on Nasdaq. That could result in a reduction in the bottlenecks that occur in the preopening as customer orders are queued for execution. With a mid-point price, many separate orders can be aggregated.

The push for price improvement comes as competition for retail order flow heats up. An onslaught of new low-cost execution services, such as Palo-Alto-based E*Trade and Datek Online Holdings of Iselin, N.J., is helping to drive down fees for retail customers. If Wall Street switches to quoting stocks in fractions, as expected, it would fuel the competition.