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January 1, 2000

Can trading professionals justify their existence in a do-it-yourself technologi

By Sanford Wexler

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Only an experienced market maker who is willing to risk his firm's capital can stabilize a tumultuous marketplace, say some institutional stock traders. As technological advances raise questions about the future, there is no doubt in the mind of some traders that their talent and skill can still outsmart the best alternative trading systems.

"If [a customer] has a million shares to buy or sell, you are still looking for price discovery. You can't trade them over a computer," said David Shields, a floor broker at the New York Stock Exchange. "You're going to leave an awful big footprint if you try to do these things that way."

Added Shields, "You basically want to leave a small footprint and kind of search out the other side without alerting a lot of adversaries to what you are trying to do."

Lee Bulleri, a Nasdaq sales trader at Sherwood Securities in Chicago, came up through the rough and tumble early years of Nasdaq. Like Shields, Bulleri thinks the new technology is hurting the human element that can provide a distinct perspective for customers.

"In the old days, you started in the back office and you worked your way to the desk," he said. "You knew where the stock was bought, where it came from, and when it sold. Everybody who handled an order had a complete idea of the market."

"Today, you buy a computer and you are a trader, " he added. "You have no idea what you are buying or selling. It could be a pac-man toy."

Deeper Inroads

There is no denying that electronic trading is making deeper inroads. Some experts say technology is good for the markets, lowering transaction costs while making the markets more transparent and accessible for individual investors on electronic communications networks.

On the listed side, the venerable New York Stock Exchange is not sitting back. The Big Board is implementing its own electronic trading system. And it has been in discussions with ECNs about possible alliances. Currently, 90 percent of its orders, representing 50 percent of the Big Board's volume, are transmitted electronically over the SuperDot system.

As proposed, the new automated system called Institutional XPpress, would handle orders under 1,000 shares. (Orders of less than 2,100 shares comprise 80 percent of the trades at the Big Board, but only 23 percent of its volume). These small orders would be executed within a few seconds, rather than the current average of 22 seconds. The system would also make it possible for the Big Board to extend its trading hours.

On Nasdaq, a new electronic trading system called the Primex Auction System that electronically replicates the specialist system on the dealer market, is slated to be introduced. The system's backers include Bernard L. Madoff Investment Securities. Overseeing its operation is former top Nasdaq executive Glen Shipway. Nasdaq has also discussed possible alliances with other alternative trading systems.