Submitted by Tyler Durden on 06/23/2011 22:11 -0400
* Dark Pools
* Exchange Traded Fund
* Institutional Investors
* Joe Saluzzi
* NASDAQ
* New York Stock Exchange
* Primary Market
* Reg NMS
* Themis Trading
Our friends at Themis Trading have put together another quite fascinating white paper which makes a disturbing observation: on an intraday basis, the widely watched market gauge indices such as the Dow Jones Industrial Avereage, the S&P 500, the Nasdaq and the Russell 1000, are based on less than 30% of all shares traded, therefore conveying incomplete trading data. The reason, which is intuitively known by all who follow the increasingly more fragmented and more compartmentalized into dark pools and other various ATS venues, market topology is that as Themis says: "the market has become increasingly dominated by trading volume from arbitraging index, ETF, and other derivative movements versus the underlying equities.... Nowadays, in a world of microsecond trading, these indexes have become phantoms - they reflect some trades involving their components, but not the majority of them." In other words it is becoming increasingly obvious why in a world of HFT, ETF, algo, ATS and everything else penetration, there is now a scramble between the legacy exchanges to merge. The alternative is a slow, painful death due to terminal obsolescence brought upon from unregulated trading venues, which often times see the alternative trading system operator have exclusive firewall and gateway privileges, where anything goes and where such obsolete constructs as Reg NMS are routinely ignored: after all how can the SEC possibly track down the billions of unique trades each and every day and catch all the transgressions. Themis provides a solution to this skewed motivation for all traders to increasingly vacate the actively regulated open exchanges: "indexes should be calculated based on every trade involving a component that crosses the consolidated tape, which includes trades from non-primary exchanges such as BATS, DirectEdge and NYSE Arca."
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http://www.zerohedge.com/article/themis-trading-white-paper-mysterious-case-majority-phantom-stock-trades
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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