Mood Media Share Discussion Threads

[8trader] 29/9/2008 20:45

I have none at all !

I just feel you are wasting your time, if the regulators made mm's
operate a fixed % spread then the mm's would simply just stop quoting
in hundreds of stocks and the situation would become far worse, like
i've already mentioned you could end up with a Winterfloods only mass
of stocks and even they might not want to quote, this is how it is and
always has been in this country, you get more or less ripped off for
everything you do or buy and penny shares are no different, i'd be amazed
if your protest makes any difference but i wish you the best of luck.

[malkie] 29/9/2008 20:38

8trader - what exactly is your objection to tighter spreads?

[8trader] 29/9/2008 20:17

malkie.

If people dont like the spread then simply dont trade the stock, stick
to stocks that offer better spreads, nobody forces anybody to walk into
a bookies and lose their money, nobody forces anybody to buy stocks with
wide spreads either !

[malkie] 29/9/2008 20:02

8trader - if its a winner then it wont matter long term?

er..what if my portfolio is diversified and includes some losers?
What if I need to sell some shares to cover some unforeseen expences?
What if I, like all 1200 of the campaign supporters simply want better trading terms?

wdurham - silly question maybe but who exactly are you arguing with?

[8trader] 29/9/2008 19:36

Malkie.

If the stock is a winner then the spread wont matter long term, it's
only day traders that will suffer, i bought some stock in a company
today with a 30% spread but i expect to make on it medium term.

[wdurham] 29/9/2008 18:56

8trader -

"Are you suggesting that all Aim stocks should be mm/sets mixed ?"

*ALL* SETS stocks - including the FTSE 100 - are MM/SETS mixed. Don't any of you here know what's actually going on?

SETSmm was founded to enable lower liquidity AIM stocks to be traded on SETS, with the MMs providing firm 2 way quotes in the event of their being no business direct on the book.

This system was extended to the entire UK LSE stock market, and renamed SETS. MMs now provide firm two way quotes on every equity traded on the LSE.

Go and read the LSE website, where it is laid out, chapter and bl@@dy verse!

"From 29 October 2007, SETSmm and SETS were united to create a single powerful platform for the trading of the constituents of the FTSE All Share Index and higher-traded AIM securities.

The combined service, called SETS, combines:
Order-driven trading with integrated market making guaranteeing 2-way prices in all securities.
One approach (full execution including quotes) and one set of rules for the trading of the more liquid UK securities"

The system that the petition-originators want already exists - SETS. It's just a matter of getting it extended to all of AIM instead of just the bigger companies.

And then, of course, you have to bully the brokers into offering DMA to their clients. At present there are only 2 brokers that offer the DMA facility for straight equities.

[malkie] 29/9/2008 17:09

8Trader - check out the campaign

[8trader] 29/9/2008 14:46

malkie

Are you suggesting that all Aim stocks should be mm/sets mixed ?

I suppose it will improve things, i'll stick by the mm's cutting
their own throats, if they dont make a fair spread then they wont
get the business and they will not make the money.

[malkie] 29/9/2008 11:22

8trader - why do you think the two need to be mutually exclusive??

[8trader] 29/9/2008 10:33

If you go all Sets in small Aim stocks you will quickly be starting
a thread to bring back the mm's :-))

[malkie] 29/9/2008 10:24

Wdurham

Which comes back yet again to what I said in the first place - a campaign directed at getting MMs to reduce their spreads, which will also increase their risk, is doomed to failure. As the trading mechanics - i.e. direct order book access for traders/investors - you advocate already exist, what you SHOULD be campaigning for is:

1. That the LSE put all AIM stocks on to SETS
2. That more brokers offer DMA.

Thank you for your input it's much appreciated.

Where you got the idea that our campaign is solely directed at Market Makers to get them to voluntarily reduce their spreads is a mystery to me.

Though we do believe that the success of the campaign could achieve this effect, at the end of the day it is about breathing life back into the AIM Market by giving the trader a better deal.

For your information, some of your suggestions are not so far off from those being put forward in our Proposal.

I suggest you take a look at our website to see what the campaign is about. Those who support the campaign and sign up will be kept informed of all developments.

If you would like to know more or become involved in any way, we would welcome your knowledge and experience.

[wdurham] 29/9/2008 07:28

malkie -

"As I stated in my previous post we are not advocating the removal of market makers from the equation, rather to permit traders to place their orders along side. This will have the effect of keeping the market honest.

Whatever platform is employed is not an issue; as long as it facilitates traders placing orders directly on the Market as already happens on ASX & TSX and with the higher liquidity AIM stocks."

Which comes back yet again to what I said in the first place - a campaign directed at getting MMs to reduce their spreads, which will also increase their risk, is doomed to failure. As the trading mechanics - i.e. direct order book access for traders/investors - you advocate already exist, what you SHOULD be campaigning for is:

1. That the LSE put all AIM stocks on to SETS
2. That more brokers offer DMA.

That will solve all the perceived disadvantages of SEAQ more or less at a stroke and allow use of the order book by anyone who wants such access and uses a broker that offers it.

PS. When I said that the MMs were "trading on their own account" I meant exactly that - they are using their own money and acting as principal, not using other people's money and acting as agent. I did not mean that they are actively engaged in trading! In fact, if you think about it, their entire purpose is to fulfil their regulatory obligations - i.e. make a market for illiquid stocks - at the least possible risk to their position. Why would they then introduce risk by actively trading? They often get into long or short positions inadvertently - for instance if there is a run of selling or buying by investors/traders - but they will usually extricate themselves from these positions as quickly as possible.

[malkie] 28/9/2008 18:53

As I stated in my previous post we are not advocating the removal of market makers from the equation, rather to permit traders to place their orders along side. This will have the effect of keeping the market honest.

Whatever platform is employed is not an issue; as long as it facilitates traders placing orders directly on the Market as already happens on ASX & TSX and with the higher liquidity AIM stocks.

If a market maker is trading on their own account as well as performing the function of creating the market, then he is effectively competing with his clients. Does this not constitute a fundamental conflict of interests?? Surely this unfair competitive advantage cannot be conducive to increased competition??

Your Genes Reunited example is interesting and as you say there would be some trust and settlement issues to overcome. I also see it as more of a stopgap solution. If it proved effective, then it is more likely the LSE would address the underlying issue we are advocating.

The problem we have right now is that the dynamics of this market are fundamentally negative and Market Makers are risk adverse. It is one thing to say that when the market climate changes the dynamics will change with it, but with the market mechanism (i.e reactive Market Makers) stuck in reverse and the spreads prohibitively wide, the bear trading pattern of buying on the dips and selling on any bounce will continue to feed on itself.

Finally it is one thing to suggest that investors should stay clear of illiquid stock with wide spreads, but let us not forget that this is the secondary market and these very companies were originally floated by the Brokerage houses who are now supposed to be making a market in their shares.

This is an issue which many of the constituent Companies have with the current market structure.

You see it's not just us mug punters who have issues with this market maker system!

[wdurham] 28/9/2008 18:11

A good point, Bach, which I had not thought to make. MMs do indeed trade ON THEIR OWN ACCOUNT when making a market in any stock. It isn't someone else's money they are using, but their own. So if they make profits they get to keep them, but if they make losses they also have to stand them. They will therefore always adjust their individual prices and spreads to keep their own heads above water and avoid losses.

But remember, no single market maker is responsible for the yellow strip spread that is published by the LSE. It is the best bid and best offer from all the MMs in a stock. So at times of activity, when MMs are competing with each other to attract or dispose of stock, it can narrow significantly.

[bach is dead] 28/9/2008 15:45

it is BECAUSE the MM's take the risk of offering a guaranteed and firm quote on ALL stocks that they are given carte blanche to charge what they like. They use their own capital to execute their business and with this in mind they expect a return on that capital while minimising ALL risk exposed to their capital. It is the PI's responsibility to ensure that they stay away from illiquid stocks and only buy their preferred stocks on weak days and sell their prferred stocks on strong days. YOU CAN WRESTLE CONTROL BACK FROM THE MM'S IF YOU CARE TOO. TRADE INTELLIGENTLY AND YOU'LL PROFIT.

[wdurham] 28/9/2008 15:35

hi, malkie -

Don't think you quite understood what I wrote -

"SETS - an order-book driven system, whereby investors who have DMA can enter orders directly on the LSE order book. Market makers are also obliged to maintain 2-way firm quotes on the said order book so that investors can buy and sell even if there are no orders - other than the MM firm quotes - on the book.

DMA - a service offered by brokers to their clients enabling them to enter orders direct on the order book, without obliging them to go through market makers and pay yellow strip price."

I wasn't talking about the broker's order book but THE order book! I don't have DMA because my preferred broker doesn't offer it, so don't know the minutiae - but as far as I can see, if you DO use a broker that offers DMA, your orders go straight on the book via your broker's connection to the exchange. As a private investor, you can never have that direct connection yourself, in your own right, only through an intermediary.

As far as I am aware - and I just checked - TSX and ASX operate in much the same way. Joe Public can't simply log into the exchange and put orders on the book. It has to be done via a broker or other intermediary, if only so that the order details can be filtered to ensure they meet exchange rules and regs. Without those checks and filters, any order of any size at any price could be put onto the book, causing chaos and a breakdown of orderly trading in a matter of seconds....!

There's an interesting article here about how to get the best prices/spreads out of SEAQ, which is now a bit old but still useful. It also discusses DMA in brief:



The real root of all of the problems is the growth of non-advisory, execution-only electronic trading over the last few years, so that ringing your broker is now not even considered as a means of placing a trade! There are folk investing/trading now who have never done anything other than electronic trading from their PCs, and that have never even spoken to their broker, and perhaps don't even know that they can...

But how many times do you see "I can't buy!" when all the poster really means is that the electronic system won't deal with him and demands a limit order for later execution, or electronic trading has been suspended. The answer is ALWAYS, if you are serious about the trade, to pick up the phone.....you will not only get filled (as long as your order is not outrageous in terms of size) but you might even get a better price!

Many electronic brokers just take the yellow strip - though some "price improvers" will do what they can to get inside the spread for you. My broker proudly tells me on-screen, when I complete an electronic order, if it has done me a better deal than the yellow strip - which is nearly always!

I totally agree that SEAQ is a real pain. About half the stocks I own are still SEAQ based, and yes, I deplore the spreads. But (a) I understand why they are so large in low-liquidity stocks; (b) I deliberately avoid trading such stocks on a regular basis, sticking to fairly long term deals; and (c) if the spread is truly horrendous, I don't deal at all, no matter how tempted I might be. After all, a stock with a massive spread is viewed by the MMs as risky to their financial health/wealth - should we not take note of that and wonder if we WANT to be exposed to so much risk?

I can't see any way of bullying the MMs into surrendering their big spreads on high risk, low-liquidity stocks - it is, after all, their safeguard against being caught in a large loss-making position. They are obliged to trade at NMS or below at no worse than yellow-strip prices - they have no choice under LSE rules. The spread helps them moderate losses. In the old days it used to be called the "jobber's turn" - I remember learning about it in A Level Economics!

The only alternative is what you have suggested - doing what the MM system was designed to avoid - and contacting other shareholders direct. If your dealing requirement is large, then this can be by far the most effective route. A friend of mine was recently able to place a very large holding in a TSX listed company at favourable prices simply by calling the company and asking them to find him a buyer....

Or you could set up a website along the lines of Genes Reunited, where in a secure and anonymous environment, those with a sell requirement could make contact with those who had a buy requirement. But how would you secure any subsequent transactions and ensure that nobody defaulted? Answer: you couldn't! Again, the SEAQ system was developed to circumvent all these problems...

Our best hope is for SETS to be extended all the way down the AIM rankings, and whether we have DMA or not, we will benefit, because yellow strip spreads tend to shrink in an order book environment. We benefit from that even if we still have to buy via the broker/MM chain.

[fatgreek] 27/9/2008 16:45

Kill the shorters, they cost us PI's too much money and it makes the aim more corrupt than an illegal casino. time to bring some fairness into the AIM market and allow us PI's with harf earned cash to trade in a fair environment

[malkie] 26/9/2008 21:54

wdurham - that certainly clarifies a lot and I can see the direction you are coming from.

ASX & TSX use the term "Direct Market Access" for the system which enables traders to place orders directly in the market. That's what the "Market" bit refers to.

From what you are saying here "Direct Market Access" means direct access to your broker and his order book, but not necessarily Direct access to the Market. So how is that Direct Market Access??

The definition of Direct Market Access is really another matter and I don't think it is helpful for anyone to get bogged down in semantics.

The objective of the Kill the Spread campaign is to petition the LSE to permit two consenting adults to be on either end of a trade without a market maker trying to keep them apart.

Its ironic that you should quote MiFID compliance as a possible obstacle, since the main objectives of the Directive are to "increase competition and consumer protection in investment services".

One way or another this will sort itself out. I recently heard of a case where a very enterprising broker having been quoted a ridiculous price for stock in a certain mining junior (the quote was above normal market size - not unusual).
so he called the Company and asked if they knew of any sellers in their stock.
Sure enough, within 10 minutes he got a call from another broker and they did a deal somewhere between the spread and both clients were happy.

There's something to think about! Anyone here can ask there broker to do the same. I know i will.

We have over 1100 supporters now and numbers are growing; we have support from many quarters and I cannot understand how anyone who deals in small caps (or would like to deal in small caps) would not want to see tighter spreads.

That is all this campaign is about!
Anyone here can ask there broker to do the same. I know i will.

If you want tighter spreads then sign up on our site - we will be sending an update to all signed up next week!

cheers

malc

[wdurham] 26/9/2008 18:17

Rapier -

It is a fact that the SETSmm system has been extended right across the board, and has completely replaced the previous SETS system. Every stock traded on SETS, from the FTSE 100 down, now has the additional backup - so it's there when required - of two-way firm quotes from market makers who care to make a market in the stock. Read the LSE website - all the info is there.

Belabed -

The SETS system used for trading larger-cap AIM stocks like Meldex is exactly the same SETS that is used for trading any other stock on the LSE, including the FTSE 100. If you think differently then you are wrong.

Malkie -

"I have been advised that there are "orderly market" issues with smaller illiquid stocks which prohibit DMA and are only supported by the Market Maker system. Ultimately this this is decided by the LSE."

Malkie, are you sure you aren't confusing DMA with the move to SETS? I can see that liquidity issues might prevent the LSE from moving a stock to SETS, but having granted DMA to any broker, they can't control which stocks that broker allows his clients to trade in!

At the end of the day, access to DMA is bought from the LSE by those BROKERS that are prepared to pay for it. Nothing to do with individual stocks that those brokers might see fit to trade on behalf of their clients. For instance, can you imagine the LSE saying to IDealing "Well, yes, you can offer DMA to some of your clients, but only to those that don't invest in piddly AIM stocks"?

However, whether or not a stock moves up to SETS or remains on SEAQ *IS* an LSE decision. Companies can request a move to the SETS platform - I know of at least one that tried for some time and eventually succeeded - but largely it is an LSE decision based on volumes, market cap, liquidity etc etc. The parameters for moving up to SETS are published on the LSE website.

I repeat that the only solution to this, given that the LSE *HAVE TO* remain onside with MiFID and all the other host of rules and regulations, is for:

a. the LSE to extend SETS all the way down the AIM rankings
b. many more brokers to bite the bullet and pay the LSE fees which will enable them to offer DMA to their clients.

And as I said before (a) without (b) is pretty much a waste of time.

Just to clarify:

SETS - an order-book driven system, whereby investors who have DMA can enter orders directly on the LSE order book. Market makers are also obliged to maintain 2-way firm quotes on the said order book so that investors can buy and sell even if there are no orders - other than the MM firm quotes - on the book.

DMA - a service offered by brokers to their clients enabling them to enter orders direct on the order book, without obliging them to go through market makers and pay yellow strip price.

So what you need first is for the stocks you want to trade to be on SETS. This is the LSE's department.

Then you need to find a broker that offers DMA. This is the broker's department.

[rapier686] 25/9/2008 15:58

Wdurham,

Re: "SETSmm is now all there is". Thanks, I hadn't realised that. Although looking through the quite sizeable order books for HBOS,Barclays and Lloyds WINS is the only named MM quote I can see.

Interactive Brokers have an awful lot of gumph to get through to understand their offering and open an account. But they are cheap - it really is £6 per trade not fill. And that's expensive for them, ASX is 0.08% (min A$6). I commend them. They don't do SEAQ though - and who can blame them given this thread!

Re: "What you describe as piddly quantities is not at the market makers' discretion"

Of course it is - they can advertise a price a bigger size than the minimum if they like. They VERY rarely do so though, in Serabi 8 MMs are currently quoting in 10k - a mere £100 worth. Only AMBR have upped their size to 50k with the plummet and even that's only £500.

I am not accusing them of flouting the rules, I'm sure they aren't. But I am accusing them of offerring a pretty useless and expensive service. We'd be better off their monopoly broken and I wouldn't mind if that meant they didn't want to play.

But I agree that extending SETS to all stocks, and more brokers offering DMA fits the bill. SEAQ is a waste of time - but is unlikely to waste much more of my money!

[tinker tailor] 25/9/2008 14:57

Glen Group - GLN

Just to show you how corrupt these market makers are they have just put a roll over through however they put one trade through the LSE stream and one through the PLUS stream.

This should not be allowed.

[malkie] 24/9/2008 19:21

there really is some discussion starting up on this...