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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May 31, 2002

At Deadline

By John A. Byrne

Instinet

*Finally, there's some good news for Instinet. Plexus Group, in a survey, ranked Instinet as number one in quality of execution for both listed and Nasdaq transactions. The rankings were based on information from a comparison survey published in April. It compared execution standards from about a dozen of the most active full-service brokers.

According to the Plexus survey, Instinet ranked as the number one broker in ten of twelve categories in listed trading. It ranked number one in 11 of 12 Nasdaq categories. Instinet has needed some good news. Its executives have agreed that the past year was brutal. Recently, Instinet removed its chief executive because of its weak profits and declining market share.

Dealer Blues

*Fechtor, Detwiler & Co. has stopped making markets in Nasdaq securities. The Boston-based research boutique, a unit of Detwiler, Mitchell & Co., now handles all Nasdaq trades on an agency basis. At one time trading about 100 securities, Fechtor now runs a three-person desk strictly to facilitate its analysts. The move did not come as a big surprise. Fechtor has been reducing its roster in phases over the past year. Although it once intended to transfer much of its Nasdaq dealing to its K&S specialist unit at the Boston Stock Exchange, it abandoned that plan earlier this year. Agency trading, however, is not new at Fechtor. It was trading as an agent long before penny ticks became popular. "We instituted that with our biggest customers over two years ago," said Tom Generazio, who runs Fechtor's trading desk. "We would trade everything as agent even if we made a market in it." Decimalization did play a role in Fechtor's decision to eliminate market making, though, Generazio added.

Goldman

*Goldman Sachs has acquired New York Stock Exchange specialist Walter N. Frank, boosting its roster of stocks. But the deal is unlikely to improve its market share. Goldman will fold Frank into its Spear, Leeds & Kellogg unit, the second largest Big Board specialist behind LaBranche. Frank will contribute about 70 stocks, equal to about one percent of Big Board volume. LaBranche will remain the market leader with a 30 percent share versus SLK's 21 percent, according to NYSE data. Both firms will trade about 580 stocks each. Volume wasn't the main reason for the deal, according to Goldman.

Frank's specialty was trading ADRs, or receipts of foreign shares, a product Goldman likes. The deal reduces the number of NYSE specialists to seven, with about 95 percent of total volume in the hands of the top five. Taking the third, fourth and fifth spots respectively are Fleet Meehan, Wagner Stott Bear and Van der Moolen.

Scandals

*As the crisis of confidence in capital markets continued through the latter part of the second quarter, Nasdaq Chairman Hardwick Simmons, in an open letter, worried about the potential reforms to correct the problems stemming from the Enron and Andersen scandals.

Simmons said Nasdaq supports many of the proposed reforms, but also warned that new regulations could be too stringent. "We are concerned," Simmons wrote, "that some of the wrong lessons may be drawn and that too much attention may be pointed to the letter and not the spirit of the rules and laws." Simmons also warned that new rules to solve one set of problems "could create more problems in themselves."