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Saturday, March 29, 2008

A Timely Boon for Small Investors

WHEN THE MARKETS ARE MOVING RAPIDLY, WITH THE PRICE OF A stock changing every millisecond, how can you know whether you received the best available price when your trade was executed?

The Nasdaq Data Store has introduced a new program called Market Replay ( that might answer this key question. You can access a demo at the Website, although the program itself isn’t available yet. Eventually, online brokers and retail market-data providers will license this technology and begin offering it to their customers.

Claude Courbois, head of product development at Nasdaq/OMX Data Products, says that Market Replay was born out of a frustrating problem he has encountered as a small investor—executing an order, but finding that he has paid a price that appears to be higher than the current quote.

The question an investor asks himself when this occurs is uncomplicated: What the heck happened? But getting an answer isn’t easy.

The small investor doesn’t have the tools for retrieving quotes at an exact moment. If that person complained to Nasdaq and it agreed to help, Courbois relates, “we would have to pull quotes out of a database and rebuild the order book to figure out when something weird had happened. It was not a user-friendly experience.” He says that the Market Replay system is intended to give people confidence and understanding of the markets—not to catch brokers doing something bad.

To use Market Replay, you enter a stock symbol and a date, then the time you want to examine—for example, 10:15 a.m. The standard replay is 10 minutes of market time, but you can request an hour or a day. The pertinent data get pulled into the program in 10-minute increments; it can take some time to download the information if you try to get a long-time-span record of an actively traded issue. Currently, 2008 trading data for Nasdaq securities are available, and the Data Store is moving backward through 2007.

If the information for a requested date hasn’t yet been loaded, the customer will get a message stating, “We don’t have this data ready yet, but will have it tomorrow morning.”

When the replay is downloaded to your computer, you’ll get a list of available information under the “Replays” menu on the display’s left side. A vertical blue line in the middle of the screen denotes the time requested. A few minutes of additional data, showing earlier and later prices, will be displayed on either side. Users can move forward and backward to the exact time that the trade went through, and take a screen shot that captures the display. Hit “Play,” and you can watch the market move in real time. You can also pause it and play it backward.

The program can also do a time-span analysis by highlighting a range around the time of your transaction that will display the range of prices at the Nasdaq and other exchanges during the specified period. “It’s comforting to be able to prove to yourself that you’re getting the best price. It’s amazing how valuable information is, even if you know the system usually works,” says Courbois. “You can find times when a price is available for literally a millisecond; no way to see that unless you have access to this kind of data.”

By the end of March, Courbois says, the program will cover NYSE- and Amex-listed shares, too. It’s fascinating for a data junkie to be able to track market movements, like the craziness that erupts at the close of the trading day or the action when news hits.

The Data Store would like to work with brokers to create tracking numbers for transactions, similar to those UPS and FedEx use for packages. Customers would simply click on the number and get a replay of the transaction. “One of the biggest problems any broker has is educating customers so they understand why something happened,” Courbois concludes. “This product helps investors gain confidence in the markets.”

Published in Barron’s, March 24, 2008.

Posted by twcarey on 03/29 at 10:41 AM
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Friday, March 21, 2008

S&P Says CAPCO is OK

In the wake of the Bear Stearns collapse, industry analysts grew concerned over the financial stability of the Customer Assets Protection Company (CAPCO), which carries their excess SIPC coverage.  (Please See “Are You Covered If Your Broker Fails?” and “If Your Broker Goes Belly Up, Part II” for an in-depth explanation.)

Yesterday, Standard and Poor’s issued a rare bulletin in which they said that CAPCO is maintaining its A+/Stable rating in spite of the claims that may ensue in a post-Bear Stearns universe.  Of interest in their bulletin is the assertion that “In the event of an excess SIPC claim related to Bear Stearns, CAPCO should benefit from a guarantee provided by JP Morgan Chase for Bear Stearns’s obligations.  In addition, clients withdrawing funds from their personal accounts actually reduces CAPCO’s potential maximum loss.” (Italics are mine.)

As the S&P bulletin spells out, for an excess SIPC claim to occur, all of the following must happen: client assets must be found to be missing, lost or stolen, and customer property, SIPC advances, fidelity bond proceeds, if any, and distributions from the general estate of the member, if any, to customers are insufficient to satisfy customer account obligations. Neither SIPC nor excess SIPC cover a decline in the market value of a client’s investments.  Clearly the Bear Stearns collapse is not due to missing, lost or stolen customer assets. 

We’re looking at a problem related to market value, which is due to some management choices that turned out to be inappropriate, rather than outright theft. 

Too bad there’s no insurance that protects against inappropriate choices.

Posted by twcarey on 03/21 at 08:52 AM
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Monday, March 17, 2008

13th Annual Review of Online Brokers Up at Barron's Online

Barron’s Online has revamped some of their policies, and some stories are available to non-subscribers after 3PM Eastern time on the date of publication.  What that means is that the review of online brokers can be read on their site now, even if you’re not a subscriber.

Here it is.  Page 6 spells out the rating system, and is not in the print edition.  Page 5 includes the sidebar critical of bank-based brokers.  There is a lot of content on pages 3 and 4 that did not appear in print, mainly descriptions of the brokers not in the top 10.  In short, the online version is about 30% longer than what ran in print. 

Making It Click: Annual Ranking
Of the Best Online Brokers


TURNING THE COMPLICATED INTO THE SIMPLE is a basic aim of online brokerage. It means bringing together the prices of everything from Nokia shares to options on South African gold to U.S. Treasury bonds on a single platform. It means simultaneously offering insights into Malaysian politics and Florida housing costs while organizing millions of electronic messages from global bourses for data, orders and transactions into information that investors can act on instantaneously.

Read the entire story here: Best Online Brokers

Posted by twcarey on 03/17 at 05:33 PM
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