December 17, 2004
The move to a centralized market with limit order price protection is one of the SEC greatest proposals ever. If youre first to place a bid you should be first to get a fill, PERIOD. Anything less discourages people from placing limit orders. Instead theyll wait to see what other people do, and displayed liquidity will decline.
On a separate note, the SEC needs to force the NYSE to allow users to view NYSE OpenBook data in a regular montage Level II window. OpenBook is now real-time, so the NYSEs prohibition on this is simply ludicrous. It annoyingly, and uselessly, forces traders to waste time comparing prices in two different windowsa costly endeavor in fast moving markets.
Last but not least, NMS still doesnt address the greatest drain on liquidity of all timepenny trading increments. With algorithmic trading, there is more incentive than ever NOT to post limit orders. Without five cent increments, liquidity WILL continue to diminish, to the point where markets that should be non-volatile, are continually volatile from a lack of order depth.
Contrary to what some in Congress believe, pennies dont help Joe Public at all if mutual funds are getting raped in market impact costs. I hope the SEC is brave enough to realize this.