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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December 5, 2008

The NYSE's Joe Mecane discusses ...

By Editorial Staff

Joe Mecane, a New York Stock Exchange executive vice president and chief administrative officer for U.S. markets, spoke at this year's STA national convention about the problems surrounding the New York's close when the SEC's short-sale ban was in effect during the turmoil of September and October.

On the problem

We saw situations exacerbated by the short-sale ban. The number of imbalances or the amount of one-sided open and close activity reached unprecedented levels. We ended up in situations where there were millions of shares of stock to buy or sell at those points in time. We saw the specialist community step up and commit huge amounts of capital to narrow those imbalances.

But when you end up with situations like we've seen in GE, Citi, and other stocks, there is only so much that can be done.

On trading halts

You have two or three options. One is to not allow a stock to completely open or close because you will end up with unexecuted activity on one side of the market. That is something we try to avoid at all costs. If someone is putting in an order where they want to get the open or the close, there might be more price movement than they expected, but at least if someone is tied to index rebalance, or whatever, they at least know they will get done.

On soliciting upstairs interest

You can close that imbalance as much as possible. We disseminate imbalance information. A lot comes in. The reality is that a lot of the players who would normally have come in to close these imbalance situations, especially in financial stocks, weren't there. That was one of the unintended consequences of the short-sale ban. You wound up with heightened volatility because you didn't have as many people playing in the market.

On delaying the close

When we had extreme situations-very large-cap stocks with millions of shares on one side of the market-at four o'clock, we went out and solicited interest from the brokers. We called all the upstairs desks and let them know there was still a very large imbalance. We tried to delay the close for a few minutes to see what kind of activity we could attract. We made a collective decision with members that in extreme circumstances [we needed] to be able to attract that additional liquidity to maintain a more orderly close. The intent is for that to happen in very extreme circumstances. We strive to close stocks as close to four o'clock as possible. We are introducing more automation to achieve that, but I do think there are times of extreme stress where a person can add value.

On mixed opinions

Some of this is religion. Some people will say, "I'd rather have the stock close at four o'clock and if it closes down 30 percent, it closes down 30 percent." A lot of issuers are very unhappy with that answer. A lot of people on the other side of the imbalance are unhappy with that answer.

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