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John D'Antona Jr.
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Has the day of the high-frequency trader and his hyper fast strategies seen its last days? Or will he evolve into something else and live to trade another day?

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November 1, 2001

Reserve Size Requirement Reduced

By Gregory Bresiger

Beginning this month, Nasdaq has ended the requirement that market makers display at least 1,000 shares for their quotes using the market's reserve size feature. Under a rule change, market participants will now only be required to display 100 shares when using the feature.

The change was designed, in part, to make the competition between market makers and ECNs fairer. ECNs are only required to display 100 shares. Many traders have been pushing for the change.

One trader describes the 1,000 share size requirement as "ridiculous" especially since ECNs are only required to display 100 shares. But the flip side of the change, according to critics, is the reduction of transparency.

With 1,000 shares traders could tell if a participant was a serious player, said another trader. The problem is a rule change designed to help one constituency - individual investors - often comes at the expense of another, market makers. The issue is transparency versus the need of market makers not to tip their hands when they are trying to execute a trade.

The reserve requirement is used so market makers can line up a large block of shares for trading without letting competitors or day traders know what they're about to do.