Attention Kmart Shoppers!

kmart

What is wrong with the “for-profit” exchange model? After all it allows for more innovation. Like the circular maker/taker pricing models in which each exchange competes with each other to “attract orders” by offering rebates of various magnitude (payment for order flow), and charging slightly higher fees usually to “remove an order”. Usually. Sometimes the exchanges invert the pricing (guaranteed loss) to attract high frequency flow to build market share. This ups their exchange data fees that they can charge. It is all one big complicated and opaque mess of a structure. We have allowed it to become so. And just when we think it can’t get more ridiculous, the ISE announces that it is running a Special, effective starting April 1st.  Extra rebates when you trade QQQQ, C, and BAC at their exchange. Yes… specials on specific issues.

http://www.ise.com/assets/documents/AboutISE/PressRelease/CompanyNews/2010/20100329$ISE_to_Introduce_a_Modified_Maker_Taker_Fee_Schedule_for_Three_of_the_Most_Actively_Traded_Options_Products_on_its_Exchange.pdf

“This unique fee structure in three of the most actively traded names at ISE will reward all market makers , further improve our high quality markets, and preserve the market structure and pricing benefits that make ISE’s market attractive to retail and institutional customers,” said Boris Llyevsky. Managing Director at the ISE.

This activity will spread, no doubt. And as exchanges compete against each other for orders to pump up their data fees they can charge back door, our markets of financial instruments will morph even further. Mom and Pop will of course love the lower prices when they trade on their Etrade account (that baby is soooo cute!). And really… with correlations of all stocks approaching a perfect 1, does it really matter if,  in a few years, the only stocks we will be able to buy are really liquid names that are wards of the state? I think not. Suitability went out the window a long time ago. So everyone just buy what’s on special. Buy Citigroup (that the government is selling). Buy Fannie and Freddie. And thank the SEC for allowing this all to happen. They care about you.

Yesterday the Dow ended up 45.5 points, the S&P500 went up 6.6 points, and the Nasdaq increased 9.2 points, because it was a Monday. Advancers outnumber decliners 2-1, and volume was an anemic 4.8 billion shares on the NYSE composite. All sectors rose, of course. Personal Income went down, and Personal Spending went up, and this was good news (what???) After the close we got word that Apple was developing a few Iphones for Verizon, prompting Dick Bove to upgrade Citibank again, and Moody’s to rate The World AAA+, with a negative watch.