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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July 31, 2003

At Deadline

By Editorial Staff

Amex

* GTCR Golder Rauner is proceeding with the purchase of the American Stock Exchange. That's despite a pending Securities and Exchange Commission probe into the Amex's regulatory oversight of its options business. A National Association of Securities Dealers spokeswoman said GTCR was made aware of the probe. However, it still wants to go ahead with the sale, she said. The $110 million bid was submitted in late May before the SEC investigation. The sale must be approved by Amex members. They have the right of first refusal. Some three years ago, the SEC and the United States Justice Department cracked down on Amex and other options exchanges. They said that they had been mishandling customer orders. Amex eventually settled a class-action lawsuit.

White Paper

* Markets trading similar kinds of securities should have "consistent, standardized trading rules," according to the Security Traders Association, which has just issued its long awaited White Paper on the national market system. The SEC must ensure that market centers that all trade, for example, Nasdaq securities, have the same rules. These centers, the paper said, should compete on the basis of execution quality and "not lax surveillance and/or enforcement programs," the White Paper said. The STA also called for the creation of "neutral, effective market linkages for Nasdaq and exchange listed securities that, among other things, employ state-of-the-art technology and provide for automatic or immediate execution of orders." The STA also called for the end of access fees charged "by certain ECNs." These fees, the STA wrote, "distort the true price available in the marketplace."

InterMarket

* The Nasdaq InterMarket loosened its trade through restrictions for market makers, but tightened them for order entry firms. A market maker may now sweep the InterMarket montage even if it results in a trade through of a better priced exchange quote. Previously, dealers could only trade through exchange quotes by directing an order to a specific dealer. With the modification, Nasdaq did not make any unilateral changes to the ITS trade through rule. Dealers must still honor any superior priced exchange quotes.

Nasdaq's rules allow dealers to cope with the often slow pace of order turnaround on some exchanges. For order entry firms, the changes eliminate a loophole. Now, these brokerages will be prevented from trading against any InterMarket quotes if the result is a trade through as defined by ITS rules. Previously, Nasdaq relied on the brokerages' own systems to prevent the trades.

Chicago

* In a cost-cutting move, the Chicago Stock Exchange laid off president Paul O'Kelly and eliminated his position. O'Kelly's duties will be divided among other executives including chief executive Dave Herron. The decision was made against a back-drop of anemic growth in share volume and a poor financial performance last year. In the first six months of this year, the CHX traded a total of 12 billion shares, up only 2.6 percent from the same period last year. In 2002, the CHX took in about $55 million in revenue, down from $67 million the previous year. The CHX lost approximately $2 million in 2002 versus a $3 million profit in 2001. O'Kelly is not the only CHX employee to be pink slipped in the past few years. The country's second largest stock exchange has cut its staff to 209 from 255 since 2000.