By: Ray Pellecchia
File Under: NYSE Amex

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From my RMCs (Relationship Management colleagues):

Here’s the report on NYSE Amex trading activity in Nasdaq-listed securities where market share was 3% or more on 4 November, 2010.

• NYSE Amex had greater than 3% share in 61 securities and NYSE Amex had greater than 5% share or more in 10 securities.

• Of the 61 securities, 12 had market volumes of 1 million or more, and 3 had market volumes of 3 million or more.

• The top three stocks PPHM (59.0%), HSNI (12.9%) and HLCS (8.8%).

In addition to the growing liquidity, take advantage of NYSE Amex’s attractive rates. On 1 October, Amex UTP’s (for the newbies out there, that’s Unlisted Trading Privileges) rebate for customers providing liquidity increased to $0.0030 per share from $0.0019, including displayed and non-displayed orders for stocks priced above $1. The fee for customers taking liquidity increased to $0.0023 per share from $0.0013.

NYSE Amex is now offering a block rebate of $0.0036 per share in Tape C securities (that’s Nasdaq-listed issues) to all clients that display large liquidity. The block rebate is paid to orders that provide liquidity and originally display a minimum of 5,000 shares in stocks priced at least $5.00 per share.

And that photo at top? For all you Yankee fans out there. Even you Yankee haters. You have to admit, “61*” was a great flick about a great moment in baseball history.

Article source: http://feedproxy.google.com/~r/hybridtalk/~3/OcsP4gevE64/heres_yesterdays_nyse_amex_volume_in_nasdaqlisted_issues.php

By: Ray Pellecchia
File Under: NYSE, NYSE Amex, NYSE Arca

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Here’s an important development announced today: the Securities and Exchange Commission has approved proposals by the exchanges to strengthen the obligations of market makers. This means consistent minimum quoting standards across markets, and the elimination of so-called “stub quotes.” All of this goes into effect on 6 Dec.

From the SEC’s announcement:

A stub quote is an offer to buy or sell a stock at a price so far away from the prevailing market that it is not intended to be executed, such as an order to buy at a penny or an offer to sell at $100,000. A market maker may enter stub quotes to nominally comply with its obligation to maintain a two-sided quotation at those times when it does not wish to actively provide liquidity. Executions against stub quotes represented a significant proportion of the trades that were executed at extreme prices on May 6, and subsequently broken.

“By prohibiting stub quotes, we are reducing the risk that trades will be executed at irrational prices, and then need to be broken, if the markets become volatile,” said SEC Chairman Mary L. Schapiro. “While we continue to look at other potential obligations for market participants, this is an important step in our effort to improve the functioning of the U.S. markets, and restore investor confidence following the events of May 6.”

The new rules address the problem of stub quotes by requiring market makers in exchange-listed equities to maintain continuous two-sided quotations during regular market hours that are within a certain percentage band of the national best bid and offer (NBBO). The band would vary based on different criteria:
• For securities subject to the circuit breaker pilot program approved this past summer, market makers must enter quotes that are not more than 8% away from the NBBO.
• For the periods near the opening and closing where the circuit breakers are not applicable, that is before 9:45 a.m. and after 3:35 p.m., market makers in these securities must enter quotes no further than 20% away from the NBBO.
• For exchange-listed equities that are not included in the circuit breaker pilot program, market makers must enter quotes that are no more than 30% away from the NBBO.
• In each of these cases, a market maker’s quote will be allowed to “drift” an additional 1.5% away from the NBBO before a new quote within the applicable band must be entered.

So no more trades in a $40 stock taking place at 1 cent or $999.

As mentioned here when the exchanges first proposed tightening the market-making obligations, May 6 had multiple causes and preventing another requires a series of safeguards. As the SEC puts it today:

Since May 6, the Commission has taken several steps to reduce the chance that the events of that day would happen again. Among other things, the Commission:
• approved the above-mentioned circuit breaker pilot program, in which trading would pause if a stock price moved more than 10% in five minutes. That program now applies to stocks in the SP 500 or the Russell 1000, as well as certain exchange-traded products.
• approved new rules requiring the exchanges to clarify up-front how and when trades would be broken.
• proposed a new rule that would require the self regulatory organizations to establish a consolidated audit trail system the would enable regulators to track information related to trading orders received and executed across the securities markets.
• adopted rules that would effectively prohibit broker-dealers from providing their customers with unfiltered access to exchanges and alternative trading systems by assuring that broker-dealers implement appropriate risk controls.

At Chairman Schapiro’s request, Commission staff is continuing to evaluate further initiatives to address market structure issues revealed by the events of May 6 such as refining the single stock circuit breakers by incorporating a limit-up/limit-down type mechanism.

This is all vitally important; collectively we need to continue working toward regaining investor confidence by improving the reliability and integrity of our markets. That, in turn, will help strengthen our markets’ role in raising capital, a critical function for economic growth. NYSE Euronext is continuing to work closely with the SEC and other exchanges toward these goals.

Article source: http://feedproxy.google.com/~r/hybridtalk/~3/exvkZmqKfqo/no_more_stub.php

By: Ray Pellecchia
File Under: ETFs / Indexes

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You might recall the commotion a couple of months weeks ago on the question of “Can an ETF Collapse?” An academic paper prompted a great deal of discussion until knowledgable people gained their voice and began explaining, in this space and others, that the concerns raised in the paper were baseless.

Well, here we go again.

Today the Kauffman Foundation issued a paper asserting that ETFs “are distorting the markets to such an extent that they are threatening the growth of new companies by effectively curtailing their access to capital.”

That’s a serious accusation from serious people at a serious institution and must be taken — you guessed it — seriously. My colleagues familiar with the ETF space are reviewing the 60-plus-page paper, and I expect we’ll be hearing from them soon.

In the meantime, Dave Nadig of Index Universe pokes what I believe are the first holes in the Kauffman paper’s argument. In all the coverage I’ve seen today of the subject — including this Cramer segment on CNBC — I haven’t heard anyone raise or respond to the point that Nadig raises here:

One of Kauffman’s many issues with ETFs is that they somehow pose a giant blowup risk for investors; that their value may simply disappear in a pile of grief and confusion. The report continuously refers to them as derivatives, a loaded word in today’s markets. They raise the specter of the government having to step in and rescue shareholders when an ETF issuer fails.

Here’s the logic of how they see an ETF issuer failing:

“In creating more ETF units, ETF sponsors are liable to purchase the underlying securities, and so the more units that are created, the greater are these purchase obligations. Yet because the underlying securities are in short supply, mounting obligations of ETF sponsors to purchase them exposes the sponsors to the risk that the cash they have on hand will be insufficient, at the sharply higher prices of the underlying securities, to cover those purchases and thus track the index.” Page 38

The levels of “Wrong!” in here are deep and profound. It reflects a serious misunderstanding of how ETFs work.

With the exception of a very few funds that rely exclusively on cash creations, ETF issuers are not “liable” to make any purchases whatsoever when new shares are created. The whole point of the ETF structure is to keep the fund (and thus the investor) from being on the hook for any transactions at all.

Kauffman mostly focuses on the iShares Russell 2000 ETF (NYSEArca: IWM), and on small-cap ETFs in general. To make new shares of IWM, an authorized participant has to deliver a specific basket of stocks to BlackRock. How does he do that? Most likely he puts in a market-on-close order to buy a big basket of stocks, which he knows—by definition—will be priced at the same closing price as represented in IWM.

If the AP can’t go buy shares of the stocks in the basket, he can’t make new shares of IWM. Assuming he can, everything works out fine: IWM gets the equity shares it needs, and the AP gets the IWM he wants.

Nowhere in this is there any risk to the existing IWM shareholder. IWM didn’t take a big pile of cash at the end of the day, and then have an obligation to race into the market tomorrow and get those stocks at any cost.

No, that nightmare scenario exists in a different vehicle: the traditional open-ended mutual fund.

More to come.

Article source: http://feedproxy.google.com/~r/hybridtalk/~3/fLkQKfMrsAU/a_first_critique_of_questions_about_etfs.php