One problem that people with a lot of time on their hands like to get worked up about is that academic economists sometimes write papers advocating positions that benefit organizations that give them money, while being coy about that relationship. On the other hand this newish paper about dark pools, which compete for stock trading orders with exchanges like NYSE and Nasdaq, has a first author whose affiliation is listed as “The NASDAQ OMX Group, Inc.,” so that’s fine then. Guess what he thinks? No, kidding, you don’t get to guess, he thinks dark pools are bad, duh.
The study, by Dr. Frank Hatheway, Nasdaq OMX Group; Dr. Hui Zheng, the University of Sydney; and Dr. Amy Kwan, the University of New South Wales, looks at US trading venues with restricted access and without displayed orders – generically referred to as “dark pools” – which increasingly segment order flow in the US. … The authors show that the effects of order segmentation by dark venues are damaging overall price discovery and market quality.
I’m a sucker for market microstructure papers because I like the Hobbesian world they imagine, where everyone is trying to rip everyone else’s face off, and keep their own face on, every nanosecond. Read more »
The Post is thinking it’s gotta be B… Read more »
Remember when Facebook IPOed last May and it was a mess? Today the SEC released its amusing order fining Nasdaq $10 million for the mess and explaining what happened. Some computers were having a stressful day at work and so they decided to give up and hide out in the nap room, is the gist of it. I feel like I’d get along with those computers.
What started the mess is that Nasdaq opens the trading of a newly IPO’ed stock with an opening cross where it compiles quotes for a while and then crosses them in one big opening cross before continuous trading starts. And it uses the following process to do the opening cross:
- 1 Get a bunch of orders over a ~20 minute period before trading starts
- 2 Use a program called the IPO Cross Application to calculate the clearing price and shares crossed based on those orders, which takes a few milliseconds
- 3 Check if any of the orders were cancelled during those milliseconds
- 4 If they were, delete those orders and Goto 2
Did you spot the problem?1 Nasdaq’s systems engineers did not, even after the IPO Cross Application had been running on an infinite loop for twenty minutes. The SEC caught it, though, reading their order, I was worried that they’d fallen prey to it as well: Read more »
The Big Board will not, after all, be selling
itself its tiny minority stake in an Indian commodities exchange. It seems, like the Euronext part of NYSE Euronext, nobody wanted it. Read more »
As everyone knows, the well-trodden path for technology startups starts in a garage, runs through angel rounds and seed rounds and other preciously named rounds of venture capital investments, and ends up with the glorious dream of listing on Nasdaq, yaaaaay. As everyone also knows, that last thing has recently become more of a boooo. The Nasdaq listing is less necessary, as modern startups tend to traffic in ethereal goods like Likes and so don’t really need to raise capital via IPOs, and it’s less pleasant, because you gotta file public documents, and your stock can go down, and something something something high-frequency robots, and David Einhorn can buy your stock and yell at you and stuff. Somehow being public has cost Facebook like forty billion dollars of market cap which is kind of amazing when you think about it.
Nasdaq is aware of this dimming of its value proposition and has come up with a new one. What if it told you you could be listed on Nasdaq but without the public documents and the David Einhorn? Would that be of interest to you? Read more »
Its dreamed-for high-frequency trading empire in ruins, Nasdaq is turning elsewhere. Read more »
If you had hoped to do some high-frequency trading directly at the Nasdaq, we have some unfortunate news. Read more »
U.S. exchanges have become a handful to handle. It seems that all of the order types they’ve instituted over the years to keep customers and regulators happy may have had the opposite result.
But it’s not Elizabeth Warren or Bernie Sanders or some other Capitol Hill communist levying these charges. It’s the exchanges themselves. And rather than doing something about the things they’ve done to make themselves “overly complex and opaque” at the expense of ordinary investors, they’d prefer to have Congress make them do something. Read more »
You know those technical issues that the stock exchanges were having a little while back? They’re still here.
Some premarket transactions in nine big-name stocks were canceled Thursday morning, in the latest example of the trading glitches that have plagued markets this year…
The bad trades came from a securities firm that was sending transactions based on faulty data, said people familiar with the problems. It wasn’t clear where the bad data originated.
Just a little glitch, right? Not exactly. Read more »
A nice thing about IPOs is that they end: you work for months on pitching and executing a deal, you write hundreds of pages of documents, you embark on a roadshow with tiny planes and slovenly CEOs, you price the deal, you watch it trade on that first exciting day, and then you don’t do it any more. You and the company bask in the warm glow of a successful deal, and/or you avoid their phone calls in embarrassment about a bad deal, and then you give them some space before coming back and pitching them on the next piece of business.
Facebook is like the opposite: no bank involved in it can be in that much of a hurry to pitch the next piece of business, but the IPO itself will be relived over and over again for the rest of time. The latest is Citi’s angry letter to the SEC, responding to Nasdaq’s proposal to compensate market makers who lost money on the deal. Their preference is, uncharacteristically, to be compensated more, and they express that preference in the form of a litany of complaints about Nasdaq’s ineptitude and self-interest.
For instance: Read more »
UBS announced earnings today and I tell you, it is hard work to get people to focus on the strong fundamentals of your business when you keep distracting them with enormous screw-ups. Today’s:
Due to the gross mishandling of Facebook’s market debut by NASDAQ, we recorded a loss of CHF 349 million [$356mm] in our US Equities business as a result of our efforts to provide best execution for our clients. As a market maker in one of the largest IPOs in US history, we received significant orders from clients, including clients of our wealth management businesses. Due to multiple operational failures by NASDAQ, UBS’s pre-market orders were not confirmed for several hours after the stock had commenced trading. As a result of system protocols that we had designed to ensure our clients’ orders were filled consistent with regulatory guidelines and our own standards, orders were entered multiple times before the necessary confirmations from NASDAQ were received and our systems were able to process them. NASDAQ ultimately filled all of these orders, exposing UBS to far more shares than our clients had ordered. UBS’s loss resulted from NASDAQ’s multiple failures to carry out its obligations, including both opening the Facebook stock for trading and not halting trading in the stock during the day. We will take appropriate legal action against NASDAQ to address its gross mishandling of the offering and its substantial failures to perform its duties.
Once upon a time two months ago Felix Salmon said “The fact is that if UBS ended up losing anywhere close to $350 million on Facebook stock, it has no business being in the equity capital markets at all,” and I laughed, and, um, well, how do people feel about that today? Read more »