An NYSE Scalper's Tale - A Trader's Diary

Monday, March 05, 2007

New Fees, New Headaches

Gross: +$281.00
Net: +$228.21
Loss From Top: $280.35
Trades: 40
Shares Traded: 96400

Stocks Traded Today (net profit/loss):
Advanced Micro Devices Inc. (AMD): +$173.79
EMC Corporation (EMC): +$93.48
The Goodyear Tire & Rubber Company (GT): +$69.49
Pfizer Inc. (PFE): +$10.04
Cooper Tire & Rubber Company (CTB): -$49.34
TXU Corporation (TXU): -$69.26

Today I spent the whole day testing out new ECNs that I've never used before and I basically just wanted to get a feel for how I'd get filled and how the fees were going to be like.

Caution: the rest of this post may be too technical for most and will probably not apply to your trading (as most of you probably have flat fee trading)....don't say I didn't warn you!

As you may or may not have known, today the Regulation NMS went into effect at the NYSE and thus some new fees kicked in today.

These new fees are a killer for my trading though....

Usually when I trade, I like to punch into a position (i.e. I like to remove liquidity when I enter a position) and what I'll try to do is add liquidity when I exit my position so that I can collect the credits that come along with it.

What I'll usually do is punch into a position using ISI (order goes directly to the specialist/NYSE) and I do this because ISI is relatively cheap when it comes to removing liquidity. Once I'm in a position, I'll throw out orders and wait on the bid or ask using either Arca or Island.

By waiting on the bid or ask using Arca or Island, I collect a credit of 0.002 cents per share (or $2 per 1000 shares) and will usually help offset the other costs associated with the trade.

However, with Reg NMS, what the NYSE is trying to do is make trading seamless across the various ECNs by routing orders to ECNs that have shares available.

But, the fees associated with this are a killer! The NYSE will be charging 0.0025 cents per share that is routed to another ECN. That means that it'll cost me $5 round trip on 1000 shares (if all the shares are routed) and $50 round trip on 10,000 shares (if all the shares are routed). And that doesn't even include the other fees associated with the trade (execution, clearing, SEC, etc)!

Before Reg NMS, the fee for using ISI was 0.000225 cents per share! The fees increased by more than a factor of 10!

So if I continued trading like I was before (by punching into a position using ISI), my fees could add up very quickly.

So today I just practiced using other ECNs to punch into positions and really tried to get a feel of how fast (or how slow) I get filled using these ECNs.

This morning we were told to use INET RASH DOTD to avoid having to eat that new routing fee. Usually an INET RASH order will check the various books (INET, Arca, NASDAQ) first to see if it can fill your order.....depending on which INET RASH order type you choose, some only checks the INET books, some check across all books and usually the balance remaining is sent to the NYSE.

Well, INET RASH DOTD bypasses all the books (INET, Arca, NASDAQ) and is routed directly to the NYSE. This is good because the fees associated with removing liquidity on these books are expensive...0.003 per share!

Unfortunately, I couldn't get INET RASH DOTD to punch into a position (it kept getting rejected by the trading app) and I later found out that the programmers did that on purpose just so that we wouldn't have the possibility of having our order routed by the NYSE (and thus have to pay that new fee).

So I spent most of the morning trying to figure out another ways to get into a position at the lowest possible cost.

I could still use ISI, however if there are shares available on other ECNs, it can get pretty expensive pretty fast.

I was told that using Millennium Pass-Through is probably the next cheapest alternative. Millennium Pass-Through will first check to see if there are shares on the Millennium book and will route the balance of your order to the NYSE.

The fees for using Millennium Pass-Through can get expensive IF there are shares on the Millennium book, but is relatively cheap if there are no shares on the Millennium book (and your order will get routed to the NYSE).

If there are shares on the Millennium book, then you will be charged 0.0015 cents per share, HOWEVER if your order is routed to the NYSE, then you will be charged only 0.00045 cents per share. Even if there are shares on the Millennium book, it's still cheaper than that new routing fee and it's cheaper than removing liquidity using INET or Arca.

So I stuck with using Millennium Pass-Through to get into a position and hoped that no shares were on the Millennium book.

I continued to exit my positions using Arca/Island as those fees have not changed.

The only problem I had was when I wanted to secure my profits and prices were starting to go against me, I found that I sometimes had to use Millennium Pass-Through to exit my position as well.

So what did I think of Millennium Pass-Through?

Even though it's now cheaper to use, I find that it's terribly slow!

When I tried to punch into a position using Millennium Pass-Through, I found it took forever to get filled and it seemed to take forever for it to route to the NYSE! I also found that cancelling Millennium Pass-Through orders seem to take forever!

Ah well...I'll just have to put up with this for a little bit longer because I was told that by Thursday they'll have another ECN for us to use that will be way cheaper (I was told it would only cost 0.27 cents on 1000 shares!).

Today I just mainly used smaller share size just so that I could get a good feel for how Millennium Pass-Through is used and I didn't really take any good trades nor were there any bad ones.

Then at around 3PM, they were having execution problems again...they said that it was the NYSE that was having a problem. At that point I figured I'd just call it a day.

Hopefully tomorrow I can get back into the full swing of things.

*Sigh* I guess we just have to adapt or's just too bad I had to waste a day just trying to figure out what to use to trade.

Sorry if I bored the heck out of you folks out there....this post was just something I wanted to have on record...

Good Trades

Bad Trades



  • One question, if you use MILN passthrough and your order gets routed to the NYSE, will NYSE not route it out if there aren't enough shares available?


    By Anonymous Anonymous, at March 05, 2007 8:45 p.m.  

  • Anon@8:45PM,
    Thanks for your comments. Hmmmm....that's a good question! I hadn't thought of that! I'll try to find out tomorrow and hopefully I can have an answer for you. When it was explained to me, it seemed as though once it was routed to the NYSE that that would be it. I'll try to find out.

    By Blogger J.C., at March 05, 2007 9:01 p.m.  

  • Hi,
    Few questions, if i may.
    Can you explain add/remove liquidity ,how it's done and for what purpose?
    secondly, if i'm using a fixed 10$ fee, i never tried to buy as much as 10000 shares, but if i do will it cost me more than the usual 10$



    By Anonymous Anonymous, at March 05, 2007 9:05 p.m.  

  • Abe,
    Thanks for your comments.

    If you remove liquidity, it means you are removing shares that are currently available. For example, say I see that there are 200 shares at $1.00 on the offer. I will remove liquidity if I hit it and go long 100 shares at $1.00. I'm removing liquidity because I'm removing shares that are currently showing on the Level 2.

    If you add liquidity, it means you are placing your order out and wait to get filled. In essence, you are adding the available shares on the Level 2.

    At the NYSE, they encourage people to add liquidity (meaning they encourage people to put out their orders to make more shares available). Certain ECNs encourage people to add liquidity by giving them credits for doing so. The NYSE also discourages people from removing liquidity and ECNs usually charge you extra for doing it.

    If you are trading a fixed fee, you probably won't get to see things like credits and such. As for whether they'll charge you more on a 10,000 share order....that's something you'll have to find out from your broker.

    Hope it helps!

    By Blogger J.C., at March 05, 2007 9:26 p.m.  

  • it's clear the ECN fee scheme is getting tough on prop traders. if you want fast execution, the fee would be high while cheap ECN like MLNM pass through is deadly slow.

    By Anonymous Anonymous, at March 05, 2007 9:40 p.m.  

  • Please let us know more about this new ECN that charges the low fees once you get a chance to use it..

    thanks in advance,
    Dave Parizek

    By Anonymous Anonymous, at March 05, 2007 10:22 p.m.  

  • Anon@9:40PM,
    Thanks for your comments. Yea...looks like that's the way of the world these days. I guess you have to be willing to pay the price if you really want the shares otherwise you can save a couple buck and possibly get shares.

    Thanks for your comment. I know it's another INET RASH order type...maybe it will utilize one of those new order types the Hybrid market supports - either those Immediate-or-cancel orders or the Intermarket sweep orders...both of these do not route to other markets, but I'll let you folks know about once we get it.

    Good luck and good trading to all!

    By Blogger J.C., at March 06, 2007 7:11 a.m.  

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