Sunday, October 08, 2006

The Roller Coaster is approaching the Top

Here's a financial news article from Friday:Link The Guardian Newspaper

20 years after London, NYSE has its Big Bang

Andrew Clark in New York
Friday October 6, 2006
The Guardian


The New York Stock Exchange will take its first step towards London-style electronic dealing today in the face of increasing international competition.

In a gradual transition, the NYSE is introducing a "hybrid market" allowing traders to buy and sell big chunks of stock at the touch of a button.

Its move is comparable to the London exchange's "Big Bang" in 1986 which led to the end of the City's trading floor - except that the Big Apple's changeover will be slower, more considered and, it is hoped, less likely to contribute to a crash akin to Black Monday in 1987.

Technology will vastly increase the NYSE's capacity. In a test on Saturday, more than 6bn shares changed hands in two hours - exceeding the exchange's record of 3.1bn for an entire day.

The changeover is nothing if not cautious. On the first day, just two stocks - American Express and Equity Office Properties Trust - will be traded under the new technology. In a gradual roll-out, all 3,600 listed companies will be included by December.

Previous electronic transactions at the NYSE were limited to small deals of 1,099 shares at a time. The new limit will be a million shares and a restriction of two trades a minute will be lifted.


Its certainly going to speed things up. The human element was like a braking mechanism. So we ought to be at full throttle by December with no emergency brake. The mutual fund traders with their star wars technology buy and sell programs will be matching wits with twits.

This could be as much fun as the automated bathrooms at Washington DC airport when the power went out. You couldn't flush a toilet, wash your hands or get a paper towel. It gives more meaning to the quote; "The road to hell is paved with good intension's."

5 comments:

chris mcdonalds said...

sorry for OT again, but i really think something fishy's going on with the median price of LA homes as reported here: http://housing-watch.com/regionview.aspx?city=los-angeles

why the flat line??? i don't get it...

Anonymous said...

The typical execution time on NYSE is a small fraction of a second for many years already.

This floor trading is only for huge blocks.

When you need the huge block to get through fast, you chop it on thousands small orders and post to NYSE, which will swallow them pretty fast.

The change to trade big blocks the same way small blocks are trade will not change anything.

Jim in San Marcos said...

Anonymous

I have no argument over the time execution issue or breaking trades up to get them through the system.

Where I disagree, is the implied assumption that there is a buyer for each seller. When there are no buyers or on the flip side no sellers, the market maker on the NYSE takes the trade. When no market exists for a thinly traded stock the market maker becomes the market and buys and sells out of his inventory. Its not uncommon for a market maker to have 10 million dollars in inventory overnight.

With the new model,if everyone all at once wanted to sell Google, and no one wanted to buy, a bid of $1 could get executed. In extreme conditions, the market could become unmanageable.

Its kind of like your automatic lawn sprinkler kicking on while its raining cats and dogs--its doing just what you programed it to do.

Jim in San Marcos said...

Chris

I checked it out, and it looks ok. What you really need to look at is Total Dollar Sales per month.

The median price times total units sold is the number you want to look at. That’s what is dropping.

Also entering into the equation is the two distinct markets old houses vs. new houses.

The builders are very aware of the median price of housing and base their sales prices in order to be competitive with the homeowner seller.

The rising inventory confirms the lack of buyers. With old homes this leads to foreclosures. With new homes, this leads to lower sales prices.

Also the median price gives you the banks sweet spot for a loan amount and it also give you a good idea what the uninformed buyer is willing or able to spend.

The other thing not looked at, is rich people. They always have money to buy a home, so if they are the only ones buying, the median price could rise in a downward trending market.

Here is a Link to a previous article on this

chris mcdonalds said...

The rising inventory confirms the lack of buyers. With old homes this leads to foreclosures. With new homes, this leads to lower sales prices.


ok, so used home prices will be less likely to lead downward then? they will only follow (new homes)? in areas like la, then, where it's more or less built up already, what does it take (to go up or down)?? as you mentioned in the july entry, credit squeeze?

also i'm curious on how many sub-prime borrowers "changed their spending habit" or whatever to deal with their new loans - the folks who otherwise would not have had a chance to "own" a home...

thanks

just a small fish in a big ocean of credit...
cm