As the combatants duked it out in the Reg NMS turf wars, Traders Magazine was gathering the results of its Annual Survey of Nasdaq and OTC Market Makers. The changes scripted for Reg NMS – a huge document that would keep a Harvard professor awake all night – could define a new era in trading. Would these proposed changes, on balance, be good for the pros in the OTC markets? And what are the pros telling us? The results might surprise you. [See Market Maker Survey inside.] To be sure, the term market maker has been turned on its side in the last tumultuous decade, a period of upheaval ultimately fostered by the hand of federal regulation and the invisible hand of technology. In an unexpected twist, Traders Magazine's Gregory Bresiger recently came upon an unemployed market maker, a moniker that would have sounded laughable a few years ago. But this pro, Richard Tullo, who's naturally critical of heavy-handed regulation, brought it all back home: Big Brother is watching. [See Washington Watch.]
Tullo's opinions may indeed represent a certain one-sided view of trading. But his opinions are worth contemplating as the steady drumbeat of layoffs have struck with lightning force across institutional sellside desks. Still, if all of this seems like a drama played out with a strong plot line and a good close, then we may have neared an epochal moment. While the layoffs mounted, another quiet revolution had been taking place behind the scenes: the introduction of fast computer engines with programs and fancy algorithms. This is high technology that would give the same Harvard professor a nervous breakdown. Our online columnist, Brian Pears of Victory Capital Management, put it in perspective. He told me, in an e-mail note: "These systems clearly disintermediate market makers and do the same for traditional cash sales traders as well. The combination of technology and penny spreads has provided the fertilizer for the growth of these program and algorithmic techniques."[See Pears' expanded opinion in Trader At Large, tradersmagazine.com] Market makers have taken it on the chin. In the past, many attacked Nasdaq management for the hard times that befell them. There is no argument on our side. Nasdaq did not do enough in the past for its critical and valuable dealer constituency. Now, however, the criticism seems to have become muted. This indeed, might be the epochal moment. Sixty-two percent of respondents to one Market Maker Survey question had a favorable impression of Nasdaq management today.
Traders Magazine
