Deja vu Once More

You could almost see it coming. During a heated discussion on market structure at a meeting at the New York Stock Exchange, one committee member reportedly uttered this one-liner: “What we need is a central place for liquidity…a place where we can all meet and trade.” The comment-tongue in cheek-came during a discussion on dark pools, or undisplayed liquidity in networks. As true as that statement is, there’s no turning back the clock to the halcyon days of 6-cents-a-share trades and thick steaks at Delmonico’s. And that’s not a bad thing. But it would be nice if traders knew where to go to access liquidity.

Connectivity is the answer to the fragmentation problems created by a multitude of dark pools, we’re told, and it’s on the way. Conversations and deals are occurring between systems and brokers-though it will be interesting to see which brokers take their time connecting or simply don’t connect to each other. They are competitors, after all.

But as our January cover story on dark pools pointed out, there are pricing issues that these firms have to deal with. Not every system charges the same fee per share for access to its liquidity. Consequently, algo routing decisions are based on price and liquidity. You have to believe-and hope-these systems can figure it out, and create a trading environment that is smooth and efficient.

Peter Chapman, no stranger to market structure discussions, writes in this month’s cover story about the National Stock Exchange’s ECN strategy going forward. It’s a familiar one that relies on ECNs and the sharing of market data revenues. The National-back when it was called the Cincinnati Stock Exchange-already did this once before.

After Reg NMS is implemented, maybe the market structure discussions will slow down. But in the meantime, there’s news aplenty in that area. The ECN BATS told Traders Magazine it intends to become an exchange. You can read that story in this month’s Industry Watch section. Recipients of our news blasts got an early preview last month of this breaking story. If you’re not getting our news updates, and would like to, sign up at

You can also read this month’s guest options columnist, Tony Saliba of LiquidPoint, who discusses the impact that penny quoting will have on the options business. I hope you find his analysis of interest. Equity pros, who’ve already seen decimalization’s effects in their market, won’t be faulted for predicting a rise in algorithmic trading in options. If it happened before, it can happen again. Just look at the National’s strategy.

Michael Scotti

Editorial Director