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I would be surprised if anyone will tell you. I'm sure they developed some
algorithm from heavy historical level III order book data mining, which
revealed that if a market maker does this or that in immediate reaction to
an ECN bid change, for example, the market maker can make a small risk-free
profit over time. And why not have the computer make the moves for
him? Since they lost their cushy spread profits following decimalization,
there's more pressure to change their tactics and develop new technologies.
I've been seeing an increase of these "too fast for any human to react"
reactions to my orders as well. Incidentally, I'm assuming you are not
confusing this with seeing your own order repeated on the Level II tier,
because your level II window may be showing a montage of the Nasdaq level
II broadcast, and the ECN books.
On a possibly related note, I don't know how close the SEC is monitoring
computerized front-running, but I would be very surprised if none of it
exists just because the technology and rules have changed. Quite the
contrary. A front-runner can be more elusive by hiding in the computer
code itself. It reminds me of the "random" 1-2 cent over-charges you get
on your telephone bill. Until a forensic software engineer finds the
illicit code, a company can simply throw its hands up in the air and say
it's a coincidence, or a "computer error." Anyway, I would report any
suspicious activity when you place your orders.
Finally, if you are one of your broker's best traders, don't assume that
your broker is letting that information get by unnoticed. Livermore had
several accounts and aliases. With today's technology, you don't have to
be a Livermore before someone or some computer program notices and tracks
your higher-than-average success.
At 09:49 AM 4/3/2002 -0700, Jim Bronke wrote:
>Is anyone familiar with market maker software out there. I notice that when
>I place a limit order on the NAZ that sometimes there is an immediate
>adjustment in other orders. I don't see it as being a coincidence. It
>happens too often. It seems that the sw is summing the buy and sell limit
>orders and calculating a new spread or something. There was talk about
>marketmakers having a table where systems are running for fading entry
>signals. Two can play that game, huh? I'd like to learn more about that sw.
>
>
>Jim Bronke
>Phoenix, AZ
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