Word: houtkin
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Dates: during 1990-1999
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...Houtkin says he is merely using technology to give the little guy an even break. Under the small-order system, each marketmaker must trade at the | displayed quote price with no chance to adjust to whatever other firms are doing. The system simply assigns the transaction to the marketmaker with the highest bid or lowest offer at the time. Result: if a Merrill Lynch specialist happens to be away from his desk when a stock starts moving, a savvy bartender could swiftly pinch $250 from his hide for every quarter-point change in price. Without the automated system, Houtkin...
...National Association of Securities Dealers can help it. The trade group, which represents 470 marketmakers, has fired off repeated barrages of new rules aimed at crippling Houtkin's business. The association even threatens to cut him off by scrapping the order-execution capability of its advanced computer system, which it touts in TV ads as "the stock market for the next hundred years." Why the hysteria? Houtkin's clients stir up "waves of orders that increase short-term volatility," charges Richard Ketchum, chief operating officer of the dealers' group. "This substantially increases the risk for marketmakers, which winds up costing...
...roots of the feud between Houtkin and the dealers go back to 1975, when Congress first nudged regulators to have marketmakers install computerized order systems to make stock trading more efficient. Congress said the firms should be encouraged to do so even if it meant that orders could be "executed without the participation of a dealer." The securities group unveiled its small-order system with great fanfare a decade later. But it was not until many marketmakers failed to honor their quoted prices in the Crash of 1987 that the group ordered all members to use the automated system...
...Fighting back, the group has limited the shares traded on the system to no more than 1,000 per transaction, and has restricted the number of trades for each account to just 10 a day. But All-Tech customers simply -- and legally -- open numerous accounts under different names. Meanwhile, Houtkin has sued the Securities and Exchange Commission in federal court to overturn the rules...
Defenders of Houtkin say the burden of proof is on dealers to show that small-order players really are harming the market. After all, these supporters contend, no marketmaker has bailed out of the dealers' association, and many Wall Street firms enjoyed record profits in the first quarter of this year. In response, the association sent the SEC a study last month that purports to show that traders using the system drove down the price of nine stocks, mostly health-care firms, during two weeks in February and March...