Simon,
Thank you for your comprehensive and informative response. There are clearly more aspects involved in ‘market making’ than most people understand or even know about. However, having said that, it is, first and foremost, your dealers job; it is what you pay them to do. Surely, by allowing them to act this way, you are simply trying to create a perfect ‘money making world’ for yourselves? You are just adopting a ‘siege mentality’ where, put quite simply, you are saying, ‘If a client attempts to trade then our quote must be wrong.’ It is interesting how you can view things this way ‘out of hours’ but take an entirely different view ‘inside market hours’ – what is the difference? You imply that any trade that a client makes is pure naked speculation – this isn’t necessarily the case. There are people out here who trade options and use SB’s as a more than effective hedge in certain situations.
Besides all of that, your argument could be extended market wide be it inside or outside normal market hours; anyone who buys or sells any stock or future believes the current price to be ‘wrong’. If someone buys something (in market terms) then they clearly believe that the item will have greater value at a future moment in time. Likewise with someone who sells something; they believe that it’s perceived value will in fact be lower at a future moment in time.
You say that dealers don’t want to get ‘caught out’; this is impossible unless FTSE stays in a 4 point range for the rest of the day! I could toss a coin to decide if I should buy or sell. Then, over the course of the first hour’s trading, on 4 out of 5 days, the market will go both above and below the level of the pre market trade. If I choose the right moment then I could take some money off you quite quickly. This doesn’t mean that the dealer’s quotation was ‘wrong’ as such.
You say that all ‘out of hours’ trades are put forward for manual execution. This I feel is fair enough. It is sensible to monitor these things carefully. What I don’t find ‘fair’ is that deals can be rejected because a dealer gets a funny feeling in his tummy. (Re your comments on out of hours quoting and trading being filled will fear.) I didn’t see that bit in your Best Execution Document!
Others have mentioned how you would deal with this is if instructions came via the telephone. Now that I would find interesting. By dealing through the internet, because of the way that you say that the dealers are allow to behave, the clients are placing themselves at a huge disadvantage because they are revealing their dealing intentions before the price x size is firm. You wouldn’t be able to play that ‘little trick’ on the telephone since a client, whilst revealing size, wouldn’t have to reveal their intended trading direction until after the dealer has specified your 4 spread quotation. This would mean that phone trading would stop you ‘front running’ the quotation. Do you not think that it is rather silly that the two methods of dealing (internet vs telephone) create such a disparity in the fairness to clients? Would it not be most sensible, from Capital Spreads perspective, if this apparent disparity didn’t exist?
The only thing that you didn’t really answer in your reply was the matter of “Trade Rejected – The Price Is No Longer Valid”. Previously you have said that trades are accepted if the price is inside the current quotation at the time they are received by your dealers. I’m sensing a ‘Rule Change’ coming on here now that we are no longer talking hypothetically and now that ‘real money’ is involved? Again this morning my attempt to trade was refused and the quote moved by 2 points. Moments later the quote returned to its original level. Again my order remained well within the ‘current quotation’ as specified by you in previous posts on these issues. It seems to me that the dealers at CS are developing their own version of ‘sign language’. An attempt to trade which results in the quote moving 2 points followed by a ‘price no longer valid’ message followed by the quote returning to its original level means, “Bugger Off! The head dealer is busy mopping out the bogs so you can’t flipping trade at the moment, besides that we don’t know what the price is”
Happy Trading,
Steve.
