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March 18, 2010

They're Off!

By Michael Scotti, Editorial Director

Equity trading, which introduced decimalization in January 2001, is now looking at pricing increments even smaller than 1 cent. So-called sub-penny trading would apply to inexpensive, high-volume stocks. But before anyone gets excited, this topic is only mentioned in the SEC's January Concept Release. There is nothing imminent, nor is there even an SEC rule proposal at this time. But there is support for it in some circles. Much of the volume for these inexpensive, high-volume stocks is traded in dark pools, including broker venues. Such a change would impact how stocks trade, though I wonder if it could be as disruptive as the one to pennies. Fortunately, the technology is in place, which might make the move easier. "How Low Can You Go?" by James Ramage offers a close-up on the topic.

Michael Scotti

In some ways, the move to pennies is at the root of most of the gripes that buyside traders have today--the rise of the algorithm, the increase in fragmentation, the declining prevalence of the block trade and the lack of color. This month's cover story addresses key issues for buyside traders today. Peter Chapman's story captures panelists in their own words from the annual meeting of the STA's Chicago affiliate. Interestingly, the panelists called for a larger minimum increment to bring liquidity back into the quote. So did two executives quoted in the sub-penny story.

There's a familiar face in the issue. Meyer "Sandy" Frucher has moved on from his successful stint at the Philly and now runs New York's Off Track Betting. His assignment sounds like one from the TV series "Mission Impossible." Frucher needs to turnaround an ailing OTB mired in bankruptcy, change its charter, complete an underwriting, renegotiate union contracts and attract new bettors.

Frucher might heed the advice a horse owner offered me 15 years ago: People go where the action is. The horse owner started by praising the Nasdaq and how he made good money trading food stocks--he was a meat wholesaler. "I love the Nasdaq," he went on and on. At the time, Nasdaq dealers were under investigation. I asked if he was aware of the collusion allegations. He said he was, but it didn't matter. He then explained how he went to Roosevelt Raceway twice the previous week to see his trotters. The first day, the track was quiet and half empty. The second day, a story broke in the morning that jockeys were caught in a race-fixing scandal. Roosevelt was packed, he said, adding that there was a buzz of excitement in the air like he'd never seen: "People love a rigged game."




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