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Liquidity Quality In A Changing Market
My focus on various topics in the realm of program trading and market liquidity has engendered quite a few vitriolic responses, some of which have argued bitterly that Zero Hedge is on the wrong path in describing the somewhat vampiric qualities of liquidity extraction by recent artificial constructs, most notably those undertaken by the NYSE. I present to our readers an original paper by two BNY ConvergEx managing directors from 2007 which should provide some additional datapoints in the great debate on whether or not liquidity benefits at all from the recent domination of computers in the "open" market, and touches on other such highly contested issues as dark pool and dark liquidity value and execution.
I want to bring our readers' attention particularly to Exhibit 4 which indicates that from a liquidity standpoint, intra-day prop trading is the worst (Goldman Sachs domination anyone?) followed by black box algo and automated market making.
In essence these observations dovetail with the findings in a recent guest post by Joe Saluzzi.
I would also like to bring attention to the finding on page 27, according to which intra-day prop trading and black box trading is low quality because both compete with long and intermediate term traders for the best price. "From the portfolio manager’s and trader’s perspective, these are sources of low-quality liquidity that can be viewed as competition for buying or selling a stock at the best price." Maybe in this more theoretical light, it is useful to again readdress the very pertinent complaint that the NASDAQ launched against the NYSE SLP program which has as of yet still generated no response either by the exchange or by the Securities and Exchange Commission.
BNY Beyond Execution 2007 Fall
Hat tip Richard
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Looks like you are back and in full swing again TD.....it's about time you slacker!
Oh, and we've missed you......
back late monday.
Just in time for GS Q2 earnings.
Safe travels. We missed you.
ZH says:
"I want to bring our readers' attention particularly to Exhibit 4 which indicates that from a liquidity standpoint, intra-day prop trading is the worst (Goldman Sachs domination anyone?) followed by black box algo and automated market making."
But what ZH should say is what solution does it advocate for these issues. And there are so many issues, all seem conflated when you read multiple posts that mention Goldman Sachs.
Why do you say that ZH should give a solution ? - the solution will present itself when awareness reaches a critical mass --- creating awareness is just what ZH is doing.
Kudos to ZH for ripping off the Figleaf. Please don't stop - go after everyone of them MFFERS.
Sorry, your reply doesn't cut it. And I'm quite familiar with astroturfing.
So who is astroturfing ? GS or ZH ?
i agree that solution provision is extremely important to the discussion but at the same time applaud zh for identifying the problem...
any way you slice it goldman sachs is a cancer on the republic - if you believe that we still have a republic - which i do not. the republic was lost 11/22/1963 12:30p..
Isn't the solution no GS?
Yes that is the solution but in view of their intricate holdings within the US Gov and FDR how does one have no GS?
Remember that they have the perfect hedge with the US Government deeming them too big to fail (amongst other things ... Geithner and prior to that Paulson) and therefore they continue to practice high risk trading pre 2007.
This is 2009 and their high risk can only be undone through Government intervention and / or a Black Swan event that they have not (nor the FDR) had contemplated. Whilst highly doubtful that would ever happen the reliance is therefore on whom to dismantle GS?
And then you still have MS, DB, UBS, etcetera and then Citi ... all too big to fail?
The SEC is pathetic, I guess the best we can hope for is wide-spread implementation of these strategies along with the accepted view of no/little risk (ie. junk bonds, Internet and housing bubbles). Once these practices are widely adopted, they will spiral out of control and the US government can step in and bail out the "too big to fail players"... AGAIN! It amazes me how people can invent new strategies to make money from manipulating and "not" investing in the markets. LOL
OK so trading algos increase the competition in to get the best price in the marketplace, they don't just provide liquidity at stupid prices. What's the problem? Are you suggesting that people should not be allowed to compete in the marketplace, or they should be allowed by only if they trade manually instead of using a computer algorithm?
You sound like some combination of a Luddite and a communist.