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Fidessa's Steve Grob has written a response to Marcus Ferber writing to ESMA condemning periodic auctions. The blog strongly criticizes Ferber's approach, and looks at the problems behind the "lit is good and dark is bad" attitude.

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September 28, 2006

For the Love of Trading: Traders have a lot more choices today

By Brian Pears

I have complained long and loud that the regulatory changes put forth in the late 1990s-decimalization most prominent among them-favored retail investors at the expense of institutions. That's all well and good, given that individuals don't have the market access and protections available to institutions. My main complaint was that, when politicians lauded their good work in the name of Ma and Pa Investor, they never thought about trying to do right by the nearly 100 million individual investors represented by the mutual fund industry.

But institutions have fought back. The growing success of so-called dark pools of liquidity has further developed the behind-the-scenes institutional market. A number of people who believe that Reg NMS, crafted to increase the display and accessibility of the best prices available on any exchange, is more likely to shade institutional trading behavior even more dark than before. Big buyside firms have always sought refuge from displayed prices in places like the Third Market and in ECN reserve books. Dark pools in all their iterations take this trend one step further.

One of the most amazing contrasts between trading today and trading last decade is how quiet things have become. I don't mean quiet in a figurative sense-traders are probably busier than they've ever been. I mean literally quiet, save for the clicking of keys on a keyboard.

Traders don't talk on the phone nearly as often as before. And I, for one, am thrilled. I don't have anything against the telephone per se, but what I never got used to was the sound of phones ringing constantly. Maybe it's just me. But back when phones were our primary means of communication, I'd go home at the end of the workday and refuse to pick up the phone. Nine hours of constant ringing each day will wear anyone down.

Now, trading rooms are much quieter. Traders don't go home with telephonic anxiety anymore. The phone is generally reserved for emergencies or for angry situations when THE CAPS LOCK KEY JUST WON'T DO! Everything else is on IM.

The Rorschach Test

This last Thing I Like is really a combination of the rest. It's the melding of all the different ways to trade that have arisen over the last few years. And it's the fact that traders have unprecedented choice and control over their orders. It's like a Rorschach inkblot-different traders can look at the same industry and see what they want to see in it.

They can see an industry the way they want, and one could not say that about our business even 10 years ago. This flexibility is the best thing about our industry. It makes the confusion around all the changes taking place bearable.

If you don't like the NYSE's modified auction, go electronic or go dark. If you can't stand the lack of information thought to be part of monitor-based trading, you can pay a broker to stand in a crowd for you. You can ask a market maker to position stock; some still do.

Granted, many of the old ways to trade are disappearing, and people-centric choices are growing scarcer. But they still exist. And, to the extent that people want them, they are likely to persist in some form. And that ability to have a choice in how to do one's job, to work in a field that encourages competition and innovation-that's something that even a Gloomy Gus like me can appreciate.

Brian Pears, a senior vice president for NYFIX, runs the firm's client coverage desk. The views expressed here are his own and not necessarily those of Traders Magazine.