From Jim Ross:

In October, 2009, the SEC issued a series of proposals to reform its Regulation Alternative Trading Systems (ATS). The proposals are called “Regulation of Non-Public Trading Interest” and a summary can be found at the SEC’s website. I encourage everyone to read them and furthermore, I urge everyone to participate in the public comment period that the SEC provides for anyone to offer their opinions and suggestions. For a retail investor, a professional market participant or an interested observer, the SEC comment period is a uniquely democratic and invaluable opportunity to contribute to the development of our marketplace.

If you don’t like what you see or you do like what you don’t see, speak up! Comments will be accepted up to Feb. 22, 2010. Here again is the link.

This is everyone’s marketplace…let’s all work on it together!

From Jim Ross: Great news about MatchPoint’s imminent connection via NYSE Common Customer Gateway (CCG). The CCG is the FIX gateway for all NYSE member firms and their customers who send their orders to the NYSE Super Display Book — the heart of the NYSE. Now NYSE members will be able to leverage their existing NYSE CCG connections to route to NYSE “super” non-displayed book: MatchPoint! The scheduled go-live date is Oct. 12.

In preparation, NYSE CCG and MatchPoint are in the final stages of rolling out our User Acceptance Testing (UAT) environment. NYSE member firms will be able to test their connectivity, order message processing and interact with our MatchPoint Testing Facility. Testing is scheduled to begin next Wednesday, Sept. 9!

Give us a call to learn more and you will be on your way to finding natural liquidity at the best possible price without information leakage in no time!!!

To single-count or to double-count trade volume, that is the question! Whether ’tis nobler in the mind to suffer the slings and arrows of outrageous double counting, or to take arms against a sea of over-inflaters. And by opposing, end them? Ah, Shakespeare! You clearly were ahead of your time!

Though double-counting (counting shares from both sides of a trade) are useful for marketing purposes and revenue calculations, it has no place in the standard of trade reporting for dark pool (or any pool) share volume. The “tape,” which is the trade-reporting standard, reflects single-counted share volume (counting only the traded shares from one side of the trade).

Our markets may support alternative models but they should not support alternative trade-reporting standards. Single-counting is the only answer to this question!

Two articles from yesterday and last Friday report on how market transparency and stability are faring in the brave new world of increasingly electronic trading.

SEC spotlight puts ‘dark pool’ venues on defensive (Reuters) Excerpts:

The operators of anonymous stock trading venues called “dark pools” defended their existence on Friday, but conceded they could be more transparent after the U.S. Securities and Exchange Commission warned they posed “emerging risks.” …

… The widespread practice of sending pre-trade messages, known as indications-of-interest, or IOIs, could spawn big private markets to which the public does not have fair access, the chairman said. …

Observers wonder whether the SEC will crack down on flashes and IOIs, require details on those who participate in dark pools, or simply mandate better trade reporting from the murky industry.

“I’d agree that there should be more regulations on IOIs going out,” said Whit Conary, president of dark pool LeveL ATS, which was launched in 2006 and is owned by Citigroup Inc, Credit Suisse Group AG, Fidelity and Merrill Lynch, which was acquired by Bank of America Corp. “I don’t think you have to over-regulate it, but at the very least a customer has every right to know if information on his order is being sent out.”

Our comment letter on the topic is here. On a related note, my NYSE MatchPoint colleague Jim Ross reminds me in an e-mail that MatchPoint is a dark pool that, as an exchange facility, has its operational model available for review on our Web site and in our MatchPoint rules, and that MP trade reports appear on the Tape with an N and an X modifier to identify MP trades from other NYSE trades. “MatchPoint is the most transparent dark pool!!!!” Jim concludes, and yes, the extra exclamation points are his, reflecting his passion for the topic.

The other article is “Rise of the (Market) Machines” (MarketBeat). Excerpts:

Increasingly, investors and pundits are clutching at straws to explain big moves in the stock market. The difficulty in divining a fundamental explanation stems from a structural change in the U.S. stock market: The majority of stock trades now originate with fully automated “high frequency” funds, a phenomenon that has accelerated during the market turbulence of recent years because of the relative success of the strategy.

… With the rise of these automated funds, the stock market is more prone than ever to large intraday moves with little or no fundamental catalyst. Computers don’t analyze the news (although some strategies use headlines as triggers) or seek to justify their buying and selling. Even in the relative quiet of the last three months, investors have often watched individual stocks or sectors move by 10% or more without explanation.

We’ll continue to follow both topics. Your comments are welcome, as always.

Welcome to Russell Reconstitution Week, folks. In case you missed my post last Friday, this coming Friday, 26 June, will mark the annual entry and exit of issues from the Russell Indices, and this can drive a lot of trading in those issues that day and/or the days leading up to it. Check it out for links to all the related procedures and guidance.

And of course, that same post kicked off the daily series of Great Russells in World History, with Russell Goings, Jr. taking the initial honors. Today’s entry was nominated by my colleague Daniel Labovitz:

Russell Stover. Don’t know who he was, exactly, but there’s a brand of candy with his name on it, so he must have done something worthwhile…and if it was just that he made chocolates, well, that’s pretty good too.

Good enough, Dan. Happens to be my mother’s favorite candy. And since you mentioned it, here’s the official history of the candy maker.

Nominations for tomorrow’s Great Russell in World History are now open, in the comment section below.

From Jim Ross: MatchPoint and trading algorithms are two effective approaches to sourcing liquidity and reducing trading costs but when linked together, they take trading performance to a new level. Algos are designed to do two things: find liquidity and minimize transaction costs. In the process of finding where contra-side liquidity resides, the algo has to avoid impacting, leaking or unduly delaying its own trading strategy. Algos, to their credit, are the only feasible way to transact in a fragmented marketplace across place and time.

Imagine, however, how much better an algo could be if it spent its time maximizing the investment and trading alpha of an order as opposed to managing to the costs of a dysfunctional, suboptimal marketplace. MatchPoint provides precisely the type of liquidity-aggregation and lowest-possible-trading-cost environment that complements if not unleashes the full potential of trading algorithms.

Liquidity found! Execution delay and information leakage, no more! MatchPoint and trading algorithms: Effective apart but better together!

From Jim Ross: MatchPoint and trading algorithms are two effective approaches to sourcing liquidity and reducing trading costs but when linked together, they take trading performance to a new level. Algos are designed to do two things: find liquidity and minimize transaction costs. In the process of finding where contra-side liquidity resides, the algo has to avoid impacting, leaking or unduly delaying its own trading strategy. Algos, to their credit, are the only feasible way to transact in a fragmented marketplace across place and time.

Imagine, however, how much better an algo could be if it spent its time maximizing the investment and trading alpha of an order as opposed to managing to the costs of a dysfunctional, suboptimal marketplace. MatchPoint provides precisely the type of liquidity-aggregation and lowest-possible-trading-cost environment that complements if not unleashes the full potential of trading algorithms.

Liquidity found! Execution delay and information leakage, no more! MatchPoint and trading algorithms: Effective apart but better together!

The alternative-trading-system model is “free form and flawed. I think it needs to be reformed,” says Jim Ross, the head of Matchpoint, NYSE Euronext’s point-in-time crossing platform in a thought-provoking interview in the current Traders Magazine.

“Jim Ross at NYSE Euronext thinks dark pools have come full circle. Crossing systems were an alternative to the exchanges, but now, in his view, a crossing platform within an exchange is the best ‘alternative to the alternatives,’” the article begins.

In between answering questions about the benefits of MatchPoint over other dark pools and point-in-time crosses, as well as other subjects, Jim puts forward an idea about the intersection of dark pools and transparency:

Opaque or pseudo-opaque ATSs are commercially self-interested rather than focused on solving problems involving implicit transaction costs. That’s not what this revolution has been about. It’s been about reducing transaction costs because transaction costs reduce performance. It’s ironic that the NYSE is more open and inclusive than the ATS industry, which is more clubbish and isolated — like the NYSE of old.

We need a more centralized environment now. That’s why MatchPoint in an exchange facility is critical in reaping the disjointed liquidity that’s out there. It’s an alternative to the alternatives.

Not one to mince words, eh? As readers of Jim’s posts on this blog well know: a shrinking violet, he’s not. Later, in a related vein:

TM: Do you think dark pools should be required to publish their market share stats monthly?

JR: Yes. ATS operators should embrace this. At a minimum, this is the right thing to do. It’s no special privilege to hide in plain sight. The dark pools are doing 8 percent to 9 percent of the consolidated volume. That’s not nothing. Investors should be able to see where their flow is going and how it’s being transacted. It’s also less effective to do transaction cost analysis without that information.

I’d recommend reading the article to get the full context, and a good sense of Jim’s passion for and Street-wise knowledge of the subject. And I’d be curious to hear what you think: is it time to shed more more light on the “dark side” of the market?

The alternative-trading-system model is “free form and flawed. I think it needs to be reformed,” says Jim Ross, the head of Matchpoint, NYSE Euronext’s point-in-time crossing platform in a thought-provoking interview in the current Traders Magazine.

“Jim Ross at NYSE Euronext thinks dark pools have come full circle. Crossing systems were an alternative to the exchanges, but now, in his view, a crossing platform within an exchange is the best ‘alternative to the alternatives,’” the article begins.

In between answering questions about the benefits of MatchPoint over other dark pools and point-in-time crosses, as well as other subjects, Jim puts forward an idea about the intersection of dark pools and transparency:

Opaque or pseudo-opaque ATSs are commercially self-interested rather than focused on solving problems involving implicit transaction costs. That’s not what this revolution has been about. It’s been about reducing transaction costs because transaction costs reduce performance. It’s ironic that the NYSE is more open and inclusive than the ATS industry, which is more clubbish and isolated — like the NYSE of old.

We need a more centralized environment now. That’s why MatchPoint in an exchange facility is critical in reaping the disjointed liquidity that’s out there. It’s an alternative to the alternatives.

Not one to mince words, eh? As readers of Jim’s posts on this blog well know: a shrinking violet, he’s not. Later, in a related vein:

TM: Do you think dark pools should be required to publish their market share stats monthly?

JR: Yes. ATS operators should embrace this. At a minimum, this is the right thing to do. It’s no special privilege to hide in plain sight. The dark pools are doing 8 percent to 9 percent of the consolidated volume. That’s not nothing. Investors should be able to see where their flow is going and how it’s being transacted. It’s also less effective to do transaction cost analysis without that information.

I’d recommend reading the article to get the full context, and a good sense of Jim’s passion for and Street-wise knowledge of the subject. And I’d be curious to hear what you think: is it time to shed more more light on the “dark side” of the market?

From Jim Ross: A critical element of MatchPoint’s order opacity is order control. Just because an order is anonymous and non-displayed it does not mean that the order is not vulnerable to information leakage, slippage or market impact. To make order opacity effective, a market participant must also retain constant control over how an order is handled and executed within a dark pool.

MatchPoint addresses order control on a number of levels. Limit prices, minimum trade sizes, internal matching, and portfolio list and cash constraints extend significant order control to MatchPoint users WITHIN the matching engine itself. In addition, MatchPoint’s “Fast Match” process reduces the match processing time down to 3-5 seconds so that users can have near real-time access to cancel or edit their orders. This order control works equally well for algorithms as it does for portfolio and block users.

If you do not know where your orders are, how they are being handled or are not able to control them, then they will get into trouble. Instead send them over to MatchPoint: a clean, well-lit place where you will know what your orders are doing and be able to manage them effectively.

With MatchPoint, your orders will grow up and become best executions in no time!!!

While MatchPoint can add value to all types of orders (and in low- and high-volatility markets), there are particular orders that reside on every order blotter and in every algo that are perfectly suited for MatchPoint. These are orders whose size or informational content is so sensitive that it takes days to execute. Very large order positions as well as mid-, small- and micro-cap orders can turn a successful funding, liquidation or transition into a transaction-cost debacle costing hundreds of basis points.

MatchPoint’s platform is a perfect place to quietly unwind/build up your tough positions or noiselessly access aggregated natural block liquidity while minimizing transaction costs. Your toughest orders to execute don’t belong on your OMS/EMS, they belong in MatchPoint. If not the entire order, then certainly a slice of each of these orders should always participate in the MatchPoint matches.

Why leak your small cap strategy across the ATS marketplace searching for unpredictable liquidity when you can retain control of your execution strategy and order information in a neutral exchange facility? Why leave a big block order accruing slippage and delay costs when there is an informationless place to tap natural block-aggregating liquidity?

Bring MatchPoint the 20% of your order blotter that makes you cringe every morning when you get to work….and it is sitting there…still waiting for you. Your tough orders need love too!