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SEC To Force Market Making Band Around NBBO, Eliminate Stub Quotes As Flawed Response To Flash Crash
In another indication of just how conflicted, confused and reactive the SEC is, Reuters reports that instead of focusing on such market destabilizing events as bid/offer cancellation and churning, Reg NMS loopholes, flash trading (yes, it is still legal, and Direct Edge is still making millions allowing those who desire and pay, to see anyone's orders ahead of time), and sub pennying, the SEC instead will focus on the completely irrelevant, and bracket market makers to submit quotes to within 10% of prevailing prices, as well as eliminating stub quotes, which in essence removes liquidity. Of course, the thought of actually removing the conditions in which stub quotes would be activated (instead of cancelling a $0.01 bid getting hit in Accenture), have never occurred to the SEC. After all, half its workforce is actively seeking employment at various HFT outfits, such as Getco, and if Mary Schapiro's worthless organization were to actually do something that may impair her employees from getting well-paying jobs from those whose interests it truly serves, it might potentially force the SEC "enforcers", "regulators" and generally, clowns, to find honest jobs, suited to their skill level, such as digging trenches, unplugging sewers, explaining how the market surges in weeks seeing unprecedented fund outflows, being brain donor recipients, and broadly volunteering for Phase III drug trials focusing on the treatment of galactic stupidity.
From Reuters:
Aiming to avoid a repeat of the stock market's "flash crash" on May 6, the U.S. Securities and Exchange Commission and big exchanges are eyeing minimum obligations for market-making firms that would force them to submit quotes that are less than 10 percent away from a stock's current price, three sources said.
One of the sources said a rule proposal could come within weeks. Another source said the SEC was trying to firm up the market-making rules before it must start crafting dozens of new rules prescribed by financial reform legislation.
Market makers typically use their own capital to take both sides of the market, essentially buying and selling without taking long-term bets so that investors can easily trade. The disappearance of useful liquidity is seen as a cause of the May 6 crash.
The crash also brought calls for a crackdown on stub quotes, which are standing orders well off the current price of a stock. Many stubs placed by market makers and others were executed May 6, for as little as a penny.
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"and broadly volunteering for Phase III drug trials focusing on the treatment of galactic stupidity."
Very funny Tyler but you give them too much credit.
IMHO there are just two causes for diagnosed stupidity. Either the person is genuinely stupid, as in a real lack of functioning brain cells. Or they are being told/instructed/ordered/bribed to appear stupid.
In this case, with the SEC/FINRA/fill-in-the-blank-regulator, it's the latter. They are deliberately looking the other way. To call them stupid speaks volumes about our desire to avoid facing the obvious, that it's time for revolution.
exactly
Wrong! A galaxy can't be stupid, you moran.
That would be moron, not moran, you moron.
Obviously you don't attend Republican tea-party rallies:
http://www.dailycognition.com/content/image/15/moran.jpg
I don't adhere to group think, whether it be Republican, Democratic, Tea Party, Red Neck Repugnicant or otherwise. This little sheared and violated sheep prefers to think for himself.
You paint with far to wide a brush, and it isn't funny, even to liberals like me.
You're just a classic latte-sippin' liberal. Grow up. I didn't attend the tax+spend rallies either when you clowns on Capitol Hill passed all those worthless stimulus projects but I'm sure we can post a pic of you somewhere.
GOP got booted out of office in the past couple years for being liberal.
The DNC will get booted out this November.. well.. for being liberal.
I'm sure the Clinton News Network and BSNBC will do their best to paint libbies in bright light - like they did with Heir Savior.
"...Heir Savior."
And there's the Hilter reference! Yee-haw! GO USA!
If you engage a Faux News/Glenn Beck/Sarah Palin/Sean Hannity/oxy-poppin' Limbaugh/ "repugnicant" long enough, it eventually comes out.
Any developments on the birth certificate, yet?
This comment is fail on so many levels. I hate to participate in any form of debate with someone who is clearly entering the debate only to attempt the lowest partisan sniping possible (and fail at it), but please allow me to elucidate just a few:
There is no Hitler reference there. Seriously. See your opthamologist.
Ah! We're back to the old, tired, retarded "all Republicans/conservatives/anyone I disagree with is secretly motivated by RACISM!!!!!" argument.
Are you SERIOUSLY going to try to play the race card in this? Seriously?
Instant fail.
Listen here, you little elf...perhaps you should stay in your tree and keeping baking those fudge-striped cookies, rather than embarrass yourself with weird opthamology references.
First, Heir Savior is a misspelling of Herr Savior, which was a clear, undeniable attempt to equate Obama to Hitler. If homersimpson's frontal cortex was more developed, he wouldn't have relied on solely on phonetics to spell correctly.
Secondly, I never once connected any dots to racism. In fact, neither did homersimpon. The only reference to race is the one that you made. How can you possibly be that dumb?
You accomplished absolutely nothing with your two posts, other than to embarrass yourself and tell everyone how you graduated from Wharton and Georgetown.
I've met lots of people/elfs from Wharton and, remarkably, they all manage to tell me that within 5 minutes of meeting them. In fact, I sincerely doubt there is a more pompous, smug group of self-righteous, old-money morons on this planet.
Climb back into your tree, and keep baking those cookies. And tell your mother to stop leaving boxes of Lucky Charms on my night stand.
Look at your name. JUST LOOK AT IT.
Do you truly believe there's anything remotely clever about combining "repugnant" and "can't" with "Republican"? The idea that you would combine those words in that way and actually be proud of the fact is just eye-bleach-worthy idiocy.
And Oooooh! LOOK! You're calling Republicans "red necks"! Wow, like this Georgetown-and-Wharton-educated computer scientist hasn't heard that a million times.
Could be moran (Wiki):
Moran (Maasai) or Il-murran, warriors among the Masai of Kenya
The SEC/Bernanke/Paulson/Geitner/Greenspan aren't as stupid as most people think. I would take everything they say & do with a huge grain of salt. Their job is about keeping the U.S. ponzi scheme going & not much else.
The wealth of America is such an illusion. The fact is our banks are insolvent. Our local, state, & federal governments are (becoming) insolvent. The USD is way overvalued. Bernanke et al have nothing to work with, absolutely nothing. His job is to keep the game going. It's not about answering questions truthfully or forthrightly. It's about keeping the music going both domestically & internationally.
I'm sure Bernanke's marching orders (from both Bush & Obama) were something along the lines of "extend, pretend, lie, do whatever the hell you have to do to keep things going".
Ever watch a national geographic show where animals are continually eating other animals? It's not about fairness or whether things are just or not. It's about survival on many levels & it is what it is.
http://bilderberg.bi.ohost.de/www/public_html/A6_Links/Pics/SynagogueOfS...
and broadly volunteering for Phase III drug trials focusing on the treatment of galactic stupidity.
nice fucking work! - I actually LOL'ed on this one - Happy Friday, SEC
PS I had an idea of my own. We can solve the whole shebang by putting NetNanny on the SEC's computers. That way, since they couldn't surf tranny porn all day, they might actually get some work done...
What's the situation on major foreign exchanges: Tokyo, London, Paris etc. Are they better regulated?
Please define this "regulated" you speak of.
Do they allow flash trading?
"being brain donor recipients, and broadly volunteering for Phase III drug trials focusing on the treatment of galactic stupidity."
hysterical :)
God Gawed. Do not let them donate their brains, please no!
Don't forget picking fruit. We need more competition in that market.
Meet the new NBBO, where Best now means Band which in turns means nothing at all.
LMAO! It is easier to blame irrelevant things. Distract from the truth. Make it look like you are really doing something. Your crony congress keeps funding your organization. Smoke and mirrors.
Mary is a good dog, throw her a bone. woo woo wooooo!
It's fun to whail and moan about "ineffective government." there's a whole political party devoted to it after all.
The SEC, like so many regulatory agencies was rendered ineffectual at least a decade ago. This serves two purposes:
1. Some politicians get to dismantle government and are enriched by doing so.
2. Some industries are enriched at the expense of broad economic sense of security and "fairness."
The longer id!ots like this rail on the SEC, the less time there is to get at restoring some sense of fairness (regulatory effectiveness) to markets of all kinds.
The system can't be saved. Let it burn.
"It's fun to whail and moan about "ineffective government." there's a whole political party devoted to it after all."
And they were such a positive influence over the 24 years they were in control (from Reagan to W, including the Clinton's second "Republican Revolution" term)... how soon we "conveniently" forget. As you say, it's the system that is broken, and changing the cast of characters will do nothing... but at least it would be entertaining.
Palin and Steel (or Glenn, the Declaration of Independence is based on religious sermons, Beck) in 2012, with John ("the tan") Boehner and Mitch (get off the dole and find a job) McConnell leading the legislative body... Lord help us all!
New rule... you must post a reply to Junk a comment... more fights (er, I mean... stimulating debate) that way!
The more regulatory regimes fail, the more people seem to want more regulation!
This is all regulation ever accomplishes:
- costs taxpayers a ton
- lulls people into a false sense of security and thus into risk-taking
- causes distortions, inefficiencies, malinvestments, and blocks progress
- gets captures by incumbent companies, at expense of competitors
- creates the very conflict of interest that it was enacted to allegedly combat
- results in more demands for more regulation
You do realize that without regulation the end result is Walmart.... just Walmart. Kind of like the ubiquity of "Buy 'N' Large" in the movie Wall-E.
Actually, *with* regulation, the result is Wal-Mart. Regulation:
- raises the costs for new entrants (compliance, tax, labor law, etc.)
- lowers the cost of capital for large players and raises it for small players
- makes it impossible to make a profit at small- or medium-scale
- gives the large incumbents a new way to win: hire multimillion dollar lobbyists in Washington
It seems that no amount of failure of regulations or regulators is enough to persuade people that regulation is bad, as such. The more it fails, the more we want. The problem is idealogical.
I don't think you can induce all regulation is bad because some regulation is bad for some small businesses Mr. Libertopian.
How would you have any small business without anti-trust laws?
Actually, I induced all regulation is bad from the fact that all regulation has been, actually, well, bad.
You said without regulation, it would all be WalMart.
I pointed out that regulation helps large incumbents, and blocks small new entrants.
And now you say that I have induced all reg is bad for small business because some is bad. You should re-read my previous post. I did not look at the concrete particulars of some regulations. I looked at the theoretical reasons why all regulations serve incumbents, at the expense not only of small businesses but customers and taxpayers.
Your demand about anti-trust is a non-sequitor. How would we have any education with the Dept. of Education? Any energy without the Dept. of Energy? Any money without the regime of irredeemable paper currency promoted by a central bank? Any prosperity without a multitrillion dollar deficit?
I dunno, somehow we did, before these gov't intrusions into our lives, liberty, property, and our economy. Mr. Mullolini-opian.
Darn that regulation of energy. Deregulation of energy worked out quite well for residents of California and made sure that Enron was honest.
I think you libertopians don't believe that anti-trust is regulation and you don't like to admit it. Hardly non-sequitur, it is the root of the discussion.
On a long enough timeline, collusion never works.
Your thesis presumes that monopolies exist in perpetuity. They do not. The world is too dynamic for that to happen.
Further, the larger they come, the fatter they are (seems at least intuitively correct right?). Look no further than the complete lack of organic revenue growth for virtually all aspects of the economy. How have corporation's persisted? Hint: look at the unemployment numbers. They've managed to last for years by shedding fat alone...
This fat is opportunity for others to enter the market... for example, by making soap.
LOL
.
The question of course is whether we can draw a fair balance between the longevity of their stays at the top and the benefits we receive from their meteoric rises. The longer we allow monopolies to persist, the more blood they draw.
Although, monopolies, to a certain extent, do provide benefits and even ancillary industry competition on occasion. For a recent example, see the universal acceptance of microsoft's operating system and what a unified format allowed for the technology industry. Of course, all monopolies outlive their welcome eventually (and usually rather quickly if not long prior).
I disagree. We all use windows because we are conditioned to, and conditioned to pay the ms tax when we buy computers, I am not an anti-ms zealot, and I use windows, but windows is only necessary for software sales as a universal platform because we 'believe' it is.
OTC Derivative market, home loan originators. Need I say more? To seriously think that regulating flash orders corners out the little man, I would love to hear how since the hft flash orders have access to prices before everyone else.
Regulation has its purpose when used correctly.
Non-sequitor.
Home loan originators were enabled by:
- insane Fed policy (why do we have a Fed again)
- which also put savers into a bind: how to find a yield > inflation (take risk!)
- Community Reinvestment Act
- various other home "affordability" programs (did they make homes more or less expensive?)
- FHA
- Fannie and Freddie
- TBTF doctrine
To say that this happened due to LACK of regulation is absolutely preposterous.
Gramm-Leach-Bliley Act...or there would not have been IB's giving homeloans in every newspaper across America.
Bear, I am quite confident that you don't understand what Non-Sequitur means, and if you do you've discovered a method of argumentation that is even worse then the Socratic method.
The use of "Non-Sequitur" and "Socratic" in one post should be outlawed... or regulated, whatever.
Ponzi Puke about describes it...
OT: The Teleprompter in chief has reached record low approval rating once again. Seems Americans are just loving our new President who takes questions at press conference once every 11 months and touts his false triumphs such as the jobs recovery & Wall Street reform in name only.
http://www.gallup.com/poll/113980/gallup-daily-obama-job-approval.aspx
John McCloy,
Unfortunately, WAR is the only thing that will save Obama's approval ratings. I would assume that is what will happen by the Nov elections.
Like the SEC, the CFTC sits idle while the gold and silver markets are pumped/whipsawed/looted time and again via the COMEX by JPM and the other criminals on Wall Street. Gensler and Chilton both know this and have basically said so if you read between the lines.
Anyone see that Kitco chart on gold today? WTF was that? Flash crash that didn't happen?
Declaring war on another country to boost approval ratings only works if you invade the right country. Let's hope he doesn't launch 3 weeks worth of Tomahawks on the wrong country, then land on an aircraft carrier (in full fighter pilot garb) and announce "mission accomplished!"
WTF? was that!
About the odd chart on today's gold prices, saw it, can't figure it out. I'm sure Jon Nadler will give us a simple and unbiased answer.
You're right. You have to declare war on the right country.
Unfortunately, Obama declared war on this country and things have been going downhill for him ever since. You'd think he'd learn a thing or two about what not to do from the Bush presidency, but he seems to be even dumber than the shrub. Shame, that.
The proposal is certainly better than the current state of things where market makers can bid .01 and offer 99,999 and still get all of their privileges. But it's also clear this proposal is designed only to avoid more embarassments like Accenture at .01 rather than really improve market quality. A real effort to improve market quality would impose much tougher affirmative obligations than these trivial standards.
So here's the bottom line. The circuit breakers went in but the embarassments continued - WPO and APC, for example - and this proposal is designed solely to prevent more bad PR. Its effect on market quality will be meaningless, but its effect on the bad PR will likely be significant - fewer news stories about stocks hitting a penny or $100,000.
Um...what privilages would those be? Name them.
What this really means is an end to real market making, who is going to take the risk? And this will be even worse for the liquidity. Soon there is nothing but a paper thin HFT bid/ask left and once they're gone, it's abyss we're staring at and into.
More than 10% move on surprising move is not that rare.
Well, at least you get it.
I was losing hope. Thank you for brightening my evening.
Tyler,
Though I love your blog, you know absolutely nothing about market making. Nothing. Perhaps even less than the SEC. And that's sad because I wouldn't trust the SEC clowns to do any of the jobs you mentioned they were suited for.
Every last one of the problems you mentioned aren't the real problem. The real problem is that the SEC has driven out market makers by increasing the regulatory burden and taking away exemptions that allowed them to efficiently hedge their positions in order to be able to mitigate their risk in providing meaningful (and by "meaningful" I mean both width of the spread and size of the bid/offer) liquidity. Every problem you mention results from the withdrawal of trading exemptions and increases in regulatory burden - both of which directly impact already thin market making margins.
These artificially reduced margins have driven out thousands of MM's over the past couple of years. What you're seeing is a market with fewer competitors and a market with fewer competitors is always inefficiant. It's one thing when when less efficient MM's are driven out of the market because their competitors are better, but it's another thing entirely when efficient market makers are driven out because it's just not worth it to deal with the SEC as it pours sand in the gears.
It's really that simple.
BTW, Reg NMS is a giant piece of crap as it screws any new exchanges that might want to compete with the big giant dens of thieves like the NYSE. Ever wonder why the NYSE loved it? And what does that result in? Less competition, more power in the hands of the insiders and more skewering of customers. And flashes? Totally irrelevant. All they do is allow the market makers on a particular exchange to provide liquidity before the orders are sent anywhere else. What do you care which exchange executes your limit order (I'm assuming you're not dumb enough to send market orders)? You've named every irrelevant thing you possibly could as "the problem". Yet, you missed the real problems in the market entirely.
I expect better from you.
More rally next week ?
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