Dark Vendor: Thanks for allowing us to come by. We think you guys will really help your clients by using SuperFreak.

Themis: You are welcome. Thanks for paying us the courtesy of a visit. Now what makes SuperFreak different?

DV: Well, for one we have a high cross rate. Last week we had two 30% days. Second we make it win-win for everybody. You get price improvement and liquidity, and high cross rates. Our algorithm maximizes this.

T: How does it do that? Sounds great.

DV: Well, our tech guys have that part down… I can’t really understand their jargon anyway!

T: Well what kind of price improvement are we talking?

DV: In between the spread.

T: If it is a penny spread, then you split the spread?

DV: Sometimes.

T: Question. How is it in this demo some of the prints that are price improved are at .5 cents, and some are at .25 cents, and some are at .004 cents?

DV: The algorithm I guess.

T: Can I enter bids .004 cents above the displayed quote?

DV: No, that’s against the SEC rules.

T: But someone must be?

DV: No everyone gets price improved.

T: No, I understand that… but why is it that we never get a fill .004 above the bid when we are buying, but seem to get 99% of our fills at .004 above the bid when we are selling?

DV: We will have to check on that.

T: So who is deciding what prices within a penny to give to whom?

DV: Well the matching engine is maximizing liquidity so you are not moving the stock. Doesn’t a 30% cross rate help you?

T: This 30% cross rate. In our experience natural block liquidity crossed dark hits a wall between 7-8%. You guys really do 30%?

DV: Yes! We are trying to innovate to coagulate the best liquidity from all sources so that it is win-win for everybody!

T: Do you do business with the internalizers?

DV: We do business with everyone. Institutions, Brokers, other crossing platforms…

T: Do you use IOI’s?

DV: No!

T: But you have economic deals with some players? Do we all pay the same rate?

DV: No, it’ like Hertz. IBM pays a cheaper rate to rent from us than my mom.

T: Ahhh you were ready for that one! Seriously do any of the other liquidity pools pay you?

DV: Too funny guys… Actually we can’t share confidential arrangements due to non-disclosure agreements.

T: Gotcha. Now the sub penny thing again… I can’t get my head around why I as a buyer can’t enter a sub penny bid, or a sub penny offer, and supposedly no one else can, but yet you are allowed to mix a pot of our orders, none of which are sub penny, and magic sub penny trades occur.

DV: Funny Sal. The algorithm does this we told you!

T: Yeah but certain players seem to be getting 95% price improved, and we seem to be always getting 5% price improved. Wouldn’t it be fair for all the orders to be matched in the middle?

DV: But more choice is better for everyone.

T: What choice? I can’t enter those cool bids. Hey do those other guys pay you so that they get those cool prints?

DV: We can’t talk about arrangements.

T: Can we pay you on behalf of our clients so that we get all the upper hand prints?

DV: What time is the next train leaving Chatham again guys? I think we have to head back to the city.

T: Hey we are just asking fellas. All cool. We don’t want to make you nervous. We just want to understand better.

DV: I got ya.

T: By the way our gut says that the internalizers who you trade with are not only getting the upper hand because their economics are better with you, but they are also recording and monitoring all the orders they kiss, like financial modeling.

DV: We wouldn’t know about that.

T: One final thing. We get the Hertz analogy. But in that case… Hertz is giving up their spoils with tiered pricing. It’s their money that they are foregoing to make a large customer happy. But if you run an exchange or a dark pool, and you are giving one customer’s economics to another large customer because they pay you better, is it really the same? I mean SuperFreak is not giving its economics up… its giving my economics up.

DV: Give me my squeegee ball back. I hate you.

 

Where we left off 4:00pm EST:

INDU              12,381.11                                +1.06

SPX                 1,324.46                                  -3.71

CCMP             2,771.51                                  -8.91

Futures now at 7:00 am EST:

DJA                             -55 

SPA                             -7.00

NDA                           -10.50

Key Data out today:

 

07:30:              Small Business Optimism (NFIB)

08:30:              Import Price Index (expecting 2.1% increase month over month)

08:30:              Import Price Index (expecting 8.6% increase year over year)

08:30:              Trade Imbalance (expecting -$44billion)

10:00:              IBD Business Optimism (Big Banks and Insurers and Healthcare companies are optimistic, everyone else is pulling their hair out)

14:00:              Monthly Budget Statement.

 

Since the prior close, some key stories:

 

–       US Futures lower; Japan Nuclear Disaster maybe is not good.

–       Alcoa missed; down 3%.

–       Banks may show weaker revenue as loans stall. Don’t matter though. They aren’t banks anymore unless they need TARP. Otherwise they are prop traders and Facebook owners.

–       USD down, Gold flat near $1460 highs.

–       Libya guns blood blah blah blah.

–       Syria guns blood blah blah blah.

–       UK retail sales have largest drop since 1995, when they started tracking it. Non-Food fell the most.

–       Amazon starts selling Kindle with special offers. That’s kind of like a free order router that stops in every internalizer dark pool first.

–       Belarus is hunting bombers that killed over a dozen.

–       German Investor Confidence dropped more than expected this morning.

–       The R-Man is bullish. WTF. Richard Russell bullish? What’s next, Nouriel buying the QQQQ?

 

Earnings:

 

Pre-market:  FAST

 

After the Close: MG

 

Significant Movers This Morning:

JOEZ -11.5% (earnings) WMS -8.8% (guidance) EXTR -8.5% (guidance) NPSP -4.9% (9M share offering) ECT -4.8% (2.35M unit offering for holder) AA -3.4% (earnings).