Mark Enriquez, managing partner and co-founder of Pulse Trading, spoke with Traders Magazine recently and discussed several issues affecting equity trading. He talked about prospective regulatory proposals, whether limits should be placed on high-frequency traders and low volumes.
On his greatest fear from the SEC’s Concept release that could come to fruition as a rule–
The "trade-at" proposal concerns us–anything that inhibits our ability to print customers within the spread in size in a non-displayed manner. Everybody says that back in the days of the specialist and some human being seeing all the order flow, well, that had its own problems. Ask any institutional trader what it was like trying to move large blocks on the floor in the late ’80s or the ’90s–that’s what gave rise to the electronic trading tools and anonymity.
On how low trading volumes have impacted profitability and firms’ long-term viability–
It’s very difficult. And I think it’s obvious. If you look at a profile of a firm like Pulse, our size in the near future will be viewed as the minimum size for a brokerage firm. It used to be that a small shop with a few good business relationships could do very well. Now we’ve seen a number of firms with that profile that have folded up or merged into larger firms. It’s probably true in any industry–when you see a decline in aggregate industry sales, smaller players pursue mergers with larger firms or are faced with falling by the wayside.
On whether there should be rules on the duration of quotes or whether cancellation fees should kick in at some level–
I’m very hesitant to call for limitations on how people can access the markets. That starts us down a path, and who knows where it would end. I’m leery to advocate any kind of limitation. There are people out there, like Vanguard, who are saying publicly that the high-frequency crowd shrunk the spread on so many names to a penny, and that that has actually benefited the investing public.
On challenges ahead for the institutional equity trading business–
My biggest concerns are the lack of institutional accounts putting money to work and where the regulators are going to fall [in terms of new proposals or rules]. Unfortunately, what we do is pretty arcane. The politicians who exert the pressure on the regulators come with an imperfect understanding of how institutional trading works. I can certainly appreciate that they look out for the mom-and-pops of the world who trade with an E*Trade account, buying and selling a hundred shares at a time. That is well and good. It concerns us when regulations are put in place that affect how institutions, who are arguably very knowledgeable–our customers, who come to work every day with a very deep understanding of how markets and players work.
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