dagblog - Comments for "NYSE Cedes Autonomy to 12-Year-Old Market"

This will not end well. And I

acanuck — Sat, 29 Dec 2012 18:58:57 +0000

This will not end well. And I don't mean just the purchase of Wall Street's iconic heart by "a 12-year-old energy market operator founded with money from a legal settlement." I mean the whole clearinghouse system that Dodd-Frank is installing as its answer to "too big to fail." Push the problem further up the food chain.

When Goldman Sachs CEO Lloyd Blankfein warns that the new rules simply concentrate the risk of catastrophic failure, I take him at his word. There are still $700 trillion of credit-default swaps floating around out there, and the market increasingly consists of financial derivatives like "interest-rate futures." The lesson government seems to have learned from 2008 is that there's no way to restructure this house of cards, so it's best to just apply a fresh coat of paint. Dodd-Frank. We're saved!

Thanks for the link ( Swaps ‘Armageddon’ Lingers as New Rules Concentrate Risk - Bloomberg ), Emma. Required reading, I think.

Good insights, Emma. I

Michael Maiello — Sat, 29 Dec 2012 17:18:36 +0000

In reply to Let me clarify...I have no

Good insights, Emma. I didn't mean "romantic" as pejorative, just to be clear.

Let me clarify...I have no

EmmaZahn — Sat, 29 Dec 2012 17:07:16 +0000

In reply to I think my issue is that I

Let me clarify...I have no romantic notions about the NYSE or floor traders but I do think you hit on one of the things I miss most -- all those research reports and red herrings for new IPOs - dozens a week. You could learn a lot about cutting edge technologies from those. And that was capitalism working as advertised: everyday savings stimulating the economy through investment.

Things really began to change early 80s. Boomers began saving for retirement bringing in more money than there were IPOs to absorb it and driving up prices. Plus we were too impatient to wait for our ROIs. Market timing supplanted fundamentals and derivatives superseded equities. Now we know where that leads. Derivatives investing uber alles. Never mind that derivatives are, well, derivatives and investing in them does very little for the broader economy. For really high rollers, they are way much more fun than Vegas but not really all that different.

I think my issue is that I

Michael Maiello — Sat, 29 Dec 2012 16:41:34 +0000

In reply to Sigh. I remember when human

I think my issue is that I arrived on the scene way too late to have romantic notions of the NYSE. I started covering this stuff in late 1999. These were the very last days of nickel spreads on trades. I was basically taught, from early on, not to worry and to love the computer. After all, people argued, mom and pop are getting nicked for that nickel on every trade. The computer only nicks fractions of a cent, like in Superman III!

What I didn't realize at the time, and only David Weild from Grant Thornton seems to have written about (Ted Kauffman was influenced by this guy) is that when those nickel spreads went away, so did the human trading market and so did the idea of banks using their desks to lend support to their IPOs. The IPO market for small companies was wrecked. Even big IPOs like Facebook, are now treated as pump and dumps. In the old days, a bank would actively trade their IPO issues for a few months, creating a floor of support and five cents a share traded for the service. The banks won't do that for a tenth of a cent. And... they don't.

Also, to your point, the death of the exchange floor is sad because floor trader was once one of those jobs where a kid from the Bronx or the wrong part of Brooklyn could, if they were lucky and had guile, work a few years and then wonder, "this is not my beautiful wife! This is not my beautiful house!"

Sigh. I remember when human

EmmaZahn — Sat, 29 Dec 2012 16:02:58 +0000

In reply to I remember meeting Michael

Sigh. I remember when human traders would bounce back obvious errors like those you mention and later when order-entry software would catch many of them and ask for confirmation before accepting. That Labranche deliberately trolled for those kinds of human errors and is admired for it rather than censured speaks volumes about how really unscrupulous the finance arena has become. Amusing? Only sardonically.

Maybe ICE buying NYSE is not that significant to you but to me it really marks the end of retail equity investing. Note I said investing, not day-trading or speculating. Also, an Atlanta company buying New York's financial heart ---

I remember meeting Michael

Michael Maiello — Sat, 29 Dec 2012 14:50:53 +0000

In reply to More on what ICE and its

I remember meeting Michael Labranche, quoted in the article, around the time of decimalization. He hadn't sold his business yet and was operating as a competitor to other market makers, using computers to undercut the spreads in ways that others hadn't yet. He showed me his board of open orders and there were some really funny open bids for Microsoft shares -- bids that had nothing to do with the share prices at the time. They were open orders his computers had left there in order to exploit typos. Some human traders sells at $3.675 instead of $36.75 and his system would pick it up fast. I found it very amusing.

I don't think ICE buying NYSE is that significant. It's been a dozen years in the making. Dark pools, where the big players maker formerly public transactions in private are more worrisome to me. In the public markets, algorithms will likely triumph over human traders and then we'll all see that algos are basically humans on steroids. They were created, after all, by human minds and so they act in very human ways. They panic and they herd. Witness the flash crash and the mini, stock specific flash crashes that have followed. The NYSE's new role is going to be to halt trading when algos get out of control.

When Skynet finally attains consciousness I'm going to tell it to stop attacking people and get back to work managing my 401(k).

More on what ICE and its

EmmaZahn — Sat, 29 Dec 2012 01:43:36 +0000

In reply to NYSE Cedes Autonomy to 12-Year-Old Market

More on what ICE and its competitors do and why they matter:

Swaps ‘Armageddon’ Lingers as New Rules Concentrate Risk - Bloomberg: