“Nickel spreads for small caps was a failed experiment” (Barrons on line):
https://www.barrons.com/articles/sec-tick-size-pilot-program-1536961160
Thank you for posting.
I wonder what they will try next…
good that they stop it!
Thank you for posting. I would have missed it otherwise
The only thing I like about the tick size program is that it is an experiment.
It failed, we move on.
More policy “improvements” should be done this way.
Maybe.
But I think it actually accomplished part of what it was set out to do. A question to be answered by the study from the FINRA site: “………as well as profitability data for market makers.” Link here.
Market makers did make more money according to the FINRA study. And remember the mandate for this study was enacted by congress as part of a JOBS PROGRAM bill soon after the 2008 recession. The study shows it increased market maker’s profits but there were not a lot of new market makers. At least we now know that the market makers did not have to share the 900 million this made for them (see Barron’s quote in link above or quotes below for source of 900 million number).
BTW, do they even have human market makers anymore. They sure are fast—like computer fast. Oh well, I also like programmers a lot (because of P123) so no matter. I actually do like the market makers used by my present broker (computer AI or not). But anyway.
The FINRA study can be found here. It is refreshing that we do not have to rely on Reuters and “unnamed government sources.” Almost unique in our modern times so I will give them credit for that. But then again, they did have to try to sell the idea to a bunch of people with advanced degrees and who were pretty good with numbers. So maybe they had to release a study.
The most favorable statement would be that they were motivated to look for ways to help the market makers but there was too big of a cost in terms of liquidity and cost to the retail investor. Perhaps they did take us into consideration in the end—under this administration.
But who believed the “hypothesis” that sending some of your money to the impoverished market makers was going to save you money somehow? If anyone at P123 bought that then I have a great penny stock for you! More seriously (since I am selling nothing) there are some good books out there like “Thinking Fast and Slow” and all of Nassim Taleb’s books that talk about not buying into stories or focusing on single ideas that people present to you.
I am all for studies that make sense and that do not have the purpose of creating government carve-outs for the already wealthy.
Unfortunately I cannot get full access to the Barron’s articles that sglinsky links to. But “……pushed a pilot program to make small-cap stocks more profitable to Wall Street” and “…Experiment Cost Investors $900 Million…” stick out for me. Left-wing-socialist rag or right-wing-conspiracy platform Barron’s is not.
-Jim
Senator: “I just read Flash Boys. We need to protect retail investors from predatory market makers. We need to discentivize HFT.”
Bureaucrat: “I don’t really read and don’t know what HFT is, but my mail-order Master’s in public administration qualifies me to craft policy which balances the excesses of market mechanisms.”
Senator: “Okay. Figure something out.”
Bureaucrat: “Yes. At once, sir”
*** 6 months later ***
Bureaucrat: “Mr. Senator. We had huge success with the program. We mandated huge spreads in penny stocks which makes them in-transact-able. In short, sir, we’ve successfully defused the price discovery process.”
Senator: “I already know, you nitwit! My constituents are threatening to lynch me for it. As it turns out, market makers were actually being compensated for providing a valuable service. Moreover, the machines took far less money out of the retail investors’ pockets than human market makers did. We must undo this foolishness before the next primaries.”
Bureaucrat: “Yes, but… [incomprehensible Marxist gibberish].”
Senator: “NOW!!!”
Bureaucrat: “At once, sir”
On a side note, never trust anyone who uses the words “craft” and “policy” adjacently to one another.
The problem is those so-called market makers (which are now HFTs) are making tons of money at investor expense, who knows how much, and it is debatable how much liquidity is actually being supplied during times of turmoil. And here is something else to be wary of:
https://bitcoinist.com/no-such-thing-as-a-free-lunch-robinhood-user-info-sold/
Steve