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A Market Maker Tremor?

Traders Magazine, April 2003

John A. Byrne. Editor

A year ago, market makers were recovering from what some described as a low blow: the introduction of penny pricing. The wounds were caused by the elimination of profitable spreads. Penny pricing was good for you know who - Aunt Nora in Boston - but a dreadful step for institutional traders. For many market makers, the remedial fix was commissions. But it was tough going. For instance, firms had to work out how to charge one side of a trade on a principal basis while the other side was charged a commission. So the results of the 2003 Traders Magazine Annual Survey of Market Makers are important in answering the question that so many in the trading industry are asking: How are market makers holding up? Not so good and not so bad, as it happens [see inside this issue]. Market makers as a group are a hardy lot. The overwhelming majority polled for this year's survey expect to remain in business, come hell or high water, in the next 12 months. Most predict the stock market will improve. Many say they will hire more pros. And, despite concerns that decimalization would destroy profitability, about 75 percent of market makers tell us they are profit centers. But most agree with the proposition that nickel increments would be a positive step for dealers. Try telling that to the Securities and Exchange Commission. (A most recent Traders Magazine Web Poll, as of late April, generated the same majority response in favor of nickels.)

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