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Author: persistentone Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35387  
Subject: Re: IBKR Pushing Hard Into Bonds Date: 6/22/2010 2:50 PM
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Extrapolating your example, in order to prevent large sudden drops in the price of the stock market, we should destroy all electronic marketplaces and instead give all of the buy and sell orders to a very few banks and let them exclusively decide which buy and sell orders they will show - at their sole discretion - to whichever buyers or sellers they want to disclose to? I don't think any of us should ever want to give up liquidity by abandoning transparent marketplaces. The current system makes huge profits for a few banks, and it destroys liquidity for the small players (retail investors).

I understand that you will need big Wall Street banks to add liquidity to markets. This is always true when those banks have corporate customers with huge buy and sell orders that might otherwise overwhelm an illiquid marketplace. That isn't an argument against transparent electronic marketplaces. If I am a large corporation, my liquidity is not hurt in any way if you can see all of the limit orders that retail buyers have on either side of bid or ask. Seeing additional limit orders can only help liquidity, for all players, at all times.

As for NYSE, the reason it has not taken off is because they do a very bad job of marketing the product, and because they get no cooperation from either the retail brokers or the big banks, both of which might view the product as a threat to profits. Again, I identified a bond on the NYSE exchange that I wanted to place a limit buy order on, and I couldn't even get my broker to mechanically place the trade. They made lots of stupid excuses, showed complete ineptitude in every aspect of researching the problem, and couldn't even get the order done talking to the guy who heads up the NYSE bond group. This is in spite of the fact that the NYSE tells me they are set up to trade on NYSE. Never underestimate the stupidity of a man whose livelihood depends on his not understanding the problem.

I totally reject that what we need is multiple stores with bonds (e.g., the Yahoo store analogy). This does nothing for liquidity, and it does nothing to save me TIME. What I need as a bond investor is a way to place a limit order to buy or sell, and have that order seen by everyone, and have that order automatically execute when the market moves my way. I don't have time to "shop" for the same order four times a day. It is totally insulting to me that to get my price I have to call into a bond desk 10 days in a row and wait for a return call to give me some totally ridiculous price that does not even come close to reflecting trade activity on FINRA TRACE. The current system is abusive to the retail investor. There is no other way to say it.

The bond programs that eTrade and Interactive Broker are starting are better than nothing. I fear that the retail investors who participate in these systems don't really understand how what looks like a marketplace isn't actually the entire bond market. I don't think the average retail investor appreciates the extent to which they are being locked out of the larger bond market.

Honestly, your post reads like someone who works for a big New York Bank, who has lots of juicy profits to protect.
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