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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March 1, 2002

At Deadline

By Editorial Staff

The Empire

*Nasdaq, "the Empire," is about to strike back at electronic communications networks, some of which are endangered, according to a Lehman Brothers report by Maureen Murphy and Luba Krayterman. The report predicted fewer ECNs, "but those that survive will become even bigger. Those that cannot differentiate themselves, will experience pricing pressure and market share erosion."

The report said liquidity is the key because that will drive faster executions, which will be critically important as ECNs battle the Nasdaq Empire. "Those [ECNs] that cannot attract the requisite liquidity have no choices, but to be order routers," the report noted. Order routing, the report warned, is not a highly profitable business and will mean an ECN will be likely to be crushed by what some might describe as Nasdaq's Darth Vader, the SuperMontage.

Rodman

*Rodman & Renshaw, a brokerage and market maker that went bankrupt, has been awarded $500,000 in punitive damages and $400,000 in compensatory damages by a three-person NYSE arbitration panel. In a split decision, the panel held Tucker Anthony had wrongly recruited professionals from Rodman. It is one of the larger judgments for corporate raiding in recent years. It also means the end of another dealer in OTC securities.

The complaint charged that Rodman's business problems began when top clients and producers in the firm's core group defected to Tucker Anthony in 1997. The next year Rodman filed for bankruptcy. Rodman, in the case, alleged that Tucker Anthony secretly made copies of client files, contacted clients and conducted sham negotiations.

Recovery

*The Securities Industry Association is preparing for disaster. The group's Committee on Business Continuity Planning (BCP) is working on a plan in case another tragedy like Sept. 11 strikes New York. The plan includes an industry command center. The center would house officials of the industry's biggest securities firms as well as various utilities.

The committee is working with firms and regulators to improve the ability of the industry to respond quickly to disaster. The command center would use the Internet to prevent market interruptions. The BCP committee is chaired by Paul Honey. He is director of global contingency planning for Merrill Lynch.

Primex

*The Primex Auction System could hurt business on the Big Board and regional exchanges. Primex is touting its initial success, reporting 5.8 million shares in average daily volume, a 60 percent increase in the one-month period, beginning Jan. 22 [see Trading & Technology]. Aside from the understandable hype, Primex is receiving some support from its partners, which include Salomon Smith Barney. The Wall Street giant has started bypassing the regionals. It sends retail order flow to Primex if the listed marts fall behind the primary exchanges in price improvement, according to managing director David Weisberger. It is a bad sign but not a fatal blow for the regionals, partly because Primex's future is uncertain. Still, the regionals have taken their lumps. Another Primex partner, Morgan Stanley, recently shuttered its specialists operations on the floors of the Philadelphia Stock Exchange and the Boston Stock Exchange.