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While this may sound simple, it represents the impetus for the changing market. Nasdaq is now converting to a customer-order-driven rather than the old dealer-quotation-driven market. Extensive investigations by the SEC and the Department of Justice found that market makers were all too willing to collude, conspire, and harass to keep the spreads artificially wide to the detriment of the public investor. The new ECNs make it far easier for public orders to interact in the real market and prevent the manipulative behavior of a restricted-access market run for the benefit of the market makers. |
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The concept of ECNs enhances price transparency by allowing public orders to be displayed. Price transparency means that the public has the ability to see the best prices from a variety of entities quoting a particular security. It also means that all secret markets should no longer be secret and all prices will converge in one place where the best prices will be prominently displayed, notwithstanding that Instinet still maintains a secret market. The creation of the ECNs is the first of a number of major changes that will evolve over the next few years. True depth of market with liquidity at all price levels will spring from instantaneous public participation afforded through electronics. |
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It is obvious to me that the future market will be a financial Internet where buyers and sellers of all securities will meet in cyberspace, obtain ultimate price discovery, and be able to have their trades executed instantaneously with no need for market-maker interaction. |
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It sounds quite simple, but transforming a good idea into reality (a trade) is often a very difficult task. For example, there are numerous books on trading option strategiesvery often utilizing spreads. There are hundreds of "spread" ideas that are valid and theoretically possible. However, putting on the spread (actually executing all sides of the transaction) at the desired prices is a much more difficult task. Frequently, |
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