| The details are still kinda sketchy and I'll be reading Barron's for
more information.
One known improvement: it is possible for a customer limit order to be
matched up against another customer limit order (one buy, one sell)
and have the transaction actually take place. Kinda like what the NYSE
has been doing for a couple centuries now.
One catch: in order for the above to happen the broker must "release"
the order "to the Access system". This is how an order can become
visible for possible matching against another customer limit order
that was "released to the Access system" by some other broker elsewhere.
Ah, but get this: the broker doesn't HAVE TO "release the order to the
Access system". Your broker can just sit on your order if he so desires.
Except the broker is required to "protect" your order "as if it were on
the Access system", which I think means if a matching trade is posted
on Access, then -- even though your order isn't posted -- the broker
has to fill your order as if it had been electronically matched at the
price you requested.
That sounds kind of strange but (if I'm recalling and interpreting this
correctly) it actually makes sense when you think of NASDAQ as a group
of brokers each of whom makes markets in a stock, and wants to continue
making money off price spreads. Here's how:
Suppose you want to buy 600 shares of URIX, currently 3 5/8 bid 3 7/8 ask.
You decide to buy at 3 3/4 or lower, thus entering a limit order between
the bid and ask. If your broker "releases" the order then maybe you'll
see a matching sell limit and get filled. That's pretty much what the
public wants to see.
Ahhh, but what if your broker is one of the URIX market-makers? Then he
really doesn't want to "release" your order to Access because you could
end up doing business with somebody else and not giving him your business.
Broker can:
(a) "Release" your order to Access if he finds the price unattractive
or (b) Sit on the order if he's willing to deal at that price
Case (a) is the easy case. Case (b) is the interesting one:
(b1) Nobody posts a limit sell order at your price 3 3/4. In which
case it's no trade and you can either cancel the order or do
what your broker REALLY wants: up the bid to the 3 7/8 the
broker, as market-maker, wants for the stock. This is how the
NASDAQ works today, you always deal with a market-maker.
(b2) Somebody posts a limit sell order on Access at your price 3 3/4.
Broker either satisfies the posted order with your order, or,
if somebody else beat him to the trade (this is the "protected"
part) your broker has to fill your order from his own inventory,
like it or not.
It's case (b2) where all the new rules come in. But notice it's the
broker who gets to decide how to post your order. If he's willing to
trade at your limit he can hold your order and hope nobody posts a
matching sell. If he's not willing to trade at your limit (typically
because he doesn't make a market in that stock (?)) then he releases
the order to Access and is not liable for missed trades.
The alert reader (are there any readers left at this point?) will have
noticed an interesting loophole in the dealers' favor. Suppose you want
to buy at 3 3/4 and I want to sell at 3 3/4. You call your order in to
your broker. I call my order in to my broker. If we were trading on NYSE
our orders would eventually meet on the exchange and get matched. BUT
on NASDAQ, even with Access, it's at least possible that both brokers
will decide to "sit on" the orders and hope no other matching orders
come across the system. In that case, we're back to business as usual
on the NASDAQ "license to steal" dealer-controlled-market system.
Neither your order nor mine is on Access, so they don't get matched.
Neither of us knows of the other's order.
As noted above, this is what I understand from the hype and interviews
that have been presented so far. The above could all be dead wrong,
but I would be surprised if it were very far off the mark.
John
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No, you are not too far afield at all, John. The NASDAQ
market-makers had a cow when the SEC started making funny regulatory
noises on this problem (Big price spreads with the difference going
into the dealer's pocket); especially the MMs that handle all the low
volume, low-priced stocks.
This "improvement" was the concensus "answer" to the critics. And
John has it perfect. You won't see better pricing on the low volume,
low priced (under $15) stocks. You will see a more like the NYSE on
the Microsofts, MCIs, etc. But the MM will still make their spread
profits until they open the NASDAQ to everyone - and won't that be
a fun day :-)
the Greyhawk
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