Commentary

Jared Dillian
Traders Magazine Online News

Was it Worth It?

In this piece from 10th Man, author Jared Dillian discusses how the ETF revolution is less about ETFs and more about indexing; about how people have come to view stocks less as stocks and more as blobs of stocks.

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June 30, 2002

At Deadline

By Editorial Staff

Setback

*The Boston Stock Exchange has suffered a major setback in its ambitious goal to compete with Nasdaq. Both K&S and Moors & Cabot have ceased making markets in Nasdaq stocks on the floor of the BSE. The exit by the two specialists leaves Melvin Specialists as the sole Nasdaq dealer at the Boston exchange. All three were part of the Boston's original plan to trade 1,000 Nasdaq names in its bid to wrest order flow from Nasdaq.

Melvin had originally planned to trade about 40 stocks. The moves hurt the BSE but they are not fatal, according to Josephine Finn, a spokesperson for the exchange. "We still have complete faith in the product," she said. "We continue to back it and will move forward to eventually build on it." Finn blames the bear market for the slowdown in Nasdaq order flow. The program was started last November after the Boston built six new posts to accommodate Nasdaq market making.

Prohibitions

*The American Stock Exchange, in what is believed to be an unprecedented move, has publicly catalogued trading practices that are prohibited. Among the practices that the Amex intends to crack down on are arrangements in which order flow providers use personal influence to fill their own orders, while ignoring price improvements for clients.

Examples of violations will be passed on to the Amex's Enforcement Division. Not all violations will result in a fine or other sanctions, according to exchange officials. The list of violations has been posted at amextrader.com.

Bulletin Board

*Nasdaq now has a challenger to its bulletin board. GlobeNet, an ECN, has just begun its own electronic platform, Bullet-X. It is designed to be the first venue focused on translating phone-based, over-the-counter bulletin board (OTCBB) trading into a modern electronic market. The problem for Bullet-X is that it doesn't offer the functionality and transparency that many investors expect, some observers say. Nevertheless, it is a large market with some 3,000 stocks and much liquidity. In May, some 16 billion bulletin board shares were traded by investors. GlobeNet becomes the first ECN to win regulatory approval to display best bid and offer along with market makers. Besides the Bullet-X system, GlobeNet ECN has been trading Nasdaq securities since June 2001.

E-Mail

*Will your e-mail some day tangle up your firm in legal problems? The Securities and Exchange Commission is working on a clarification of its e-mail rule. Today the rule is cloudy. That's because the SEC hasn't been able to define how much e-mail relates to the records that firms are required to keep for inspection. Consequently, many firms - fearing a possible regulatory problem - keep every piece of e-mail, which causes a storage problem for some of them.

The rule clarification is critical for many firms. That's because of the controversy over Merrill Lynch's internal e-mails, communications that were used by the New York State Attorney General in his investigation of analysts.