Matt Levine on how NYSE works at 9:30 and differently at 9:31

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Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by nisiprius »

The NYSE Forgot to Open Yesterday

I hope you can read it from that link... I get Matt Levine's Bloomberg "Money Stuff" column by no-cost email subscription, but when I tried the regular link it appears as if this content is also available from the website without a subscription. The link to subscribe to the no-cost email newsletter is Money Stuff no-cost newsletter signup; the newsletter contains ads; I have no connection with Levine or Bloomberg other than being a fan of the column.

It's interesting, not just for an explanation of a something that happened, but for his excellent explanation of how the NYSE trading system works.

The main thing I had had no idea about is that the market functions very differently at the open than it does a minute later. According to Levine, the opening moments are the real auction, where price discovery really happens, and market makers are not involved because there are enough participants all at the same time that they can just work it out between themselves. For the rest of the day, the market is operating as, he says, a "central limit order book (CLOB)" in which everyone is actually trading with market makers, but the market makers have no real opinion on the stock and are just almost-mechanically intermediating to keep trading orderly.

It's really hard to trim this down and you should really read the whole article. But, he says:
The basic problem of the stock market is that a lot of people want to buy a lot of stock, and a lot of people want to sell a lot of stock, but not at the same time.... In theory, there are about three ways to deal with this: 1) I could just wait.... 2) There could be market makers.... 3) The exchange could get us all together at the same time. The stock exchange could say: “Hey, everybody who wants to buy or sell Wells Fargo shares, we’re gonna do a big share swap at 9:30 a.m. tomorrow.

Method 2 is sort of the standard paradigm.... It is sometimes called a “central limit order book,” or “CLOB.” .... I do want to mention one complaint that people sometimes have, which is that liquidity in the stock market is somehow illusory or fleeting or “not real.” Part of what this means is that, if the national best bid and offer for Wells Fargo is $44.99/$45.01, you could go to a market maker and buy Wells Fargo for $45.01, or sell it for $44.99, but you couldn’t buy or sell very much of it.... the limit order book does not represent the true economic supply and demand for a stock. It just represents the supply and demand for the stock right now, mainly from risk-averse high-frequency electronic market makers....

...Method 2 is the main procedure, but Method 3 is also really important. In fact there are some obvious times when lots of people all want to trade at the same time: The US stock market’s main opening hours are 9:30 a.m. to 4 p.m., and people naturally gravitate toward trading at the open or the close, at 9:30 or 4. And so the big listing exchanges, the New York Stock Exchange and Nasdaq, run opening and closing auctions for the stocks they list. The rough idea of the auction is:
  • Everyone who wants to buy or sell stock at the open or the close puts in orders to buy or sell, in the minutes leading up to 9:30 or 4.
  • Some of those orders are market orders (“I want to buy/sell stock at whatever the auction price ends up being”), while others are limit orders (“I want to buy stock in the auction if the price is $44.95 or less”).
  • The exchange’s computers find a price that matches up the most orders and chooses that as the auction price.
  • Everyone who put in an order to buy at the auction price or more (or with a market order) buys, and everyone who put in an order to sell at the auction price or less (or with a market order) sells....
...The opening auction is where the day’s price discovery happens: All the “real” investors, pension managers and hedge funds and retail traders on Robinhood, have updated their views on value overnight, and then they meet at 9:30 in the opening auction and work out what the market-clearing price is.

Notice that in Method 3 you don’t really need market makers... Also, market makers probably don’t want to trade in the opening auction. A market maker does not have a deeply informed view about the fundamental value of a stock; it just tries to turn over inventory quickly and do trades at pretty close to the previous trade. At 9:30 a.m., there is no previous trade....

And so there’s an opening auction among mostly real investors, and it sets the opening price, and a bunch of shares trade at that price, and then a millisecond later normal trading starts. And when normal trading starts, the market makers put in their orders to buy and sell stock... and the market operates with a central limit order book for the next 6.5 hours.
According to Levine, what happened yesterday is that due to a "system issue," they neglected to conduct the opening auction, causing "wild price swings and a temporary trading freeze in stocks of major companies such as Exxon Mobil Corp., McDonald’s Corp. and Walmart Inc." Levine thinks that
If you woke up at 7 a.m. and put in an order with your broker to buy 500 shares of Walmart at the open, and then you went off to work at your job and forgot about it, your broker probably put in a market order to buy 500 shares in the opening auction. And then there was no opening auction. So your order got sent to the central limit order book to execute as a normal trade, instead of executing in the opening auction.

There are two big problems with that. One is that, at 9:30:00, the central limit order book is empty.... The other problem is that the orders in the opening auction can be big.
Since I don't trade individual stocks, none of this affects me, but I thought it was really interesting.

I usually operate under the illusion that the stock market offers perfect liquidity and smoothly varying prices, and that I can see a "market price" continuously in real time and buy or sell whenever we like at a price very close to that price. What this exposes is that there really are humans and auctions behind it, and that the almost-perfect liquidity is the result of centuries of experience and a complicated web of regulations and practices.

I think it also underlines that a small retail investor is not participating in price discovery when the decide whether to trade individual stocks or ETFs during the day. They are not even a hangnail on the Invisible Hand. The Invisible Hand is the institutional investors trading 10,000 shares at the open. And that when the popularity of index funds takes me, and a million like me, out of making individual stock trades during the day, it does not interfere with the work of the Invisible Hand. It only interferes with the people who want to sell me stuff that isn't index funds.
Last edited by nisiprius on Thu Jan 26, 2023 10:27 am, edited 2 times in total.
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by TomatoTomahto »

Matt Levine is a daily must-read. Free for the asking email subscription.
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by alex_686 »

On a related note, the closing process is similar.

As such, the published opening and closing prices tend to beca bit wonky and of lower quality than intraday prices. Of course that is continuous so you really can’t cone ip with a single number.

For context I have had to strike a fund’s NAV with those closing prices.
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by nedsaid »

Ah Nisiprius, you are seeing how sausages are really made and it isn't pretty. Market makers really do perform a function on the exchanges and it really is a necessary function, market makers really do provide liquidity when needed. I have wondered about such things myself.

Recently, I decided to buy a ladder of TIPS, each rung maturing five years apart. A rung in 2024, another in 2029, another in 2034, another in 2039, and the final in 2044. Didn't have a huge sum of money but I was taught here how to buy individual TIPS at Fidelity here on the forum and how to purchase in smaller increments.

So I did an internet search: when does the Bond Market open? Google told me 8 a.m. to 5 p.m. Eastern Time. So being a West Coaster, I set the alarm for 5:00 a.m. Logged in to Fidelity, I bought the first traunche, E-Z P-Z, no problem. The allotment was something like 10 bonds. Then I tried to buy a second traunche, I got a huge purchase order limit, something like $75-$100K. So okay, the Bond traders haven't all rolled out of bed yet. So I tried again at 6:30 a.m. or 9:30 a.m. Eastern TIme, which is when the Stock Market opens. Same thing, very high purchase limits. Fiddled around with dollar amounts and maturity dates, I even tried TIPS around the 2044 maturities, same thing. Man, those Bond traders must be sleepy heads. Had to get ready for work, so I used a duration matching strategy with TIPS ETFs, which was my original plan, and gave up on buying them individually. It wasn't at all like KevinM said when he taught me how to do this.

So yes I know that the Bond Market and the Stock Market are two different things. And I know that there really isn't an exchange for most Bonds, some time ago the NYSE provided an exchange for the most liquid Bonds, probably mostly US Treasuries. But I could see a bit of what Nisiprius and Matt Levine are talking about. Maybe if I had been able to purchase my TIPS at noon my time or 3:00 p.m. Eastern Time, I suppose all the sleepy head Bond traders would finally be at work.

So I was left shaking my head. I knew TIPS were less liquid than normal US Treasuries but this was ridiculous. Don't those lazy Bond traders ever show up for work? :wink: I sure couldn't do that with my job, rolling in at 10:15 a.m. or so when I am supposed to be there at 8:00 a.m. :wink: What happened here?
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by nedsaid »

And while I am at it, how does that bell work that they ring to start the NYSE trading session at 9:30 a.m. and to close it at 4:00 p.m.? I noticed some guy presses a button and a ringer that rotates in circular fashion spins giving the bell the ding, ding, ding, ding, ding, ding, ding, ding sound when it rings. What an enquiring mind wants to know, is how does the ringer work without getting stuck? If you put NYSE closing bell in the search box on YouTube and watch one of the videos, you will see what I mean. The thing is, the actual bell doesn't move, just the ringer. How does that ringer, moving in a circular direction, ring the bell without getting stuck?
Last edited by nedsaid on Thu Jan 26, 2023 8:24 am, edited 1 time in total.
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by JoMoney »

Closing prices at least seem to have some broad consistency, when I've had "Market-On-Close" orders for some large liquid stock the trade has seemed to reliably execute at the widely publicized close price. A "Market-On-Open" order seems to result in execution with a much wider range than the quotes broadly publicized as open price.
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by CletusCaddy »

And this is why everyone putting in limit orders is just wasting their time
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by burritoLover »

CletusCaddy wrote: Thu Jan 26, 2023 9:26 am And this is why everyone putting in limit orders is just wasting their time
This is precisely why you want to place limit orders and not market orders:
According to Levine, what happened yesterday is that due to a "system issue," they neglected to conduct the opening auction, causing "wild price swings
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by PersonalFinanceJam »

nedsaid wrote: Thu Jan 26, 2023 8:16 am ...
So yes I know that the Bond Market and the Stock Market are two different things. And I know that there really isn't an exchange for most Bonds, some time ago the NYSE provided an exchange for the most liquid Bonds, probably mostly US Treasuries. But I could see a bit of what Nisiprius and Matt Levine are talking about. Maybe if I had been able to purchase my TIPS at noon my time or 3:00 p.m. Eastern Time, I suppose all the sleepy head Bond traders would finally be at work.

So I was left shaking my head. I knew TIPS were less liquid than normal US Treasuries but this was ridiculous. Don't those lazy Bond traders ever show up for work? :wink: I sure couldn't do that with my job, rolling in at 10:15 a.m. or so when I am supposed to be there at 8:00 a.m. :wink: What happened here?
As you said there is no real exchange for bonds so you rely on whatever institution you are working with to have the right bonds in the quantities and price you can work with. Clearly when you were trying Fidelity didn't, but I think if you were to go back now and look at the depth of book for those maturities you would be able to execute your trades. While your response is probably a bit tongue in cheek, I wouldn't expect massive changes in the depth of book on an hour by hour basis. For what it's worth, I too was creating a TIPS ladder but with different maturities. The only issue I ran into was one day prices were changing faster than I could put in orders so I waited until the next day when things were not quite so dynamic.
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by nedsaid »

PersonalFinanceJam wrote: Thu Jan 26, 2023 9:58 am
nedsaid wrote: Thu Jan 26, 2023 8:16 am ...
So yes I know that the Bond Market and the Stock Market are two different things. And I know that there really isn't an exchange for most Bonds, some time ago the NYSE provided an exchange for the most liquid Bonds, probably mostly US Treasuries. But I could see a bit of what Nisiprius and Matt Levine are talking about. Maybe if I had been able to purchase my TIPS at noon my time or 3:00 p.m. Eastern Time, I suppose all the sleepy head Bond traders would finally be at work.

So I was left shaking my head. I knew TIPS were less liquid than normal US Treasuries but this was ridiculous. Don't those lazy Bond traders ever show up for work? :wink: I sure couldn't do that with my job, rolling in at 10:15 a.m. or so when I am supposed to be there at 8:00 a.m. :wink: What happened here?
As you said there is no real exchange for bonds so you rely on whatever institution you are working with to have the right bonds in the quantities and price you can work with. Clearly when you were trying Fidelity didn't, but I think if you were to go back now and look at the depth of book for those maturities you would be able to execute your trades. While your response is probably a bit tongue in cheek, I wouldn't expect massive changes in the depth of book on an hour by hour basis. For what it's worth, I too was creating a TIPS ladder but with different maturities. The only issue I ran into was one day prices were changing faster than I could put in orders so I waited until the next day when things were not quite so dynamic.
I did look at the depth of book and chose the listing that had a minimum of one bond and same thing. It was like the depth of book didn't really mean anything. Perhaps if I would have tried on another day, the trades might have gone through. It was just something odd was happening and there seemed no explanation.
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by nisiprius »

nedsaid wrote: Thu Jan 26, 2023 8:21 am And while I am at it, how does that bell work that they ring to start the NYSE trading session at 9:30 a.m. and to close it at 4:00 p.m.? I noticed some guy presses a button and a ringer that rotates in circular fashion spins giving the bell the ding, ding, ding, ding, ding, ding, ding, ding sound when it rings. What an enquiring mind wants to know, is how does the ringer work without getting stuck? If you put NYSE closing bell in the search box on YouTube and watch one of the videos, you will see what I mean. The thing is, the actual bell doesn't move, just the ringer. How does that ringer, moving in a circular direction, ring the bell without getting stuck?
And while we are at it, is it the first ding or the last that marks the actual close, and is there a sensor that monitors the sound and cuts off high-frequency trading at the first cycle of the waveform, and do traders bribe corrupt NYSE officials to delay the ding by two milliseconds?

Surely we can't believe that the bell is fake and actually does nothing at all?

Great mystery plot. "I could not have done it, you can see that I was ringing the NYSE closing bell at the time of the crime." "Oho, but I have found that on that day, due to a technical glitch which you bribed an engineer to create, they failed to do it at the appointed and restaged the ceremony for 4:20 pm, giving you plenty of time to dash out, commit the deed, and return."

I never saw it before so I just looked at this one. I once watched a video of people from Vanguard supposedly "closing" the Nasdaq "MarketSite," when they had just launched some ETFs there, and thought it was the most cringeworthy thing I'd ever seen. But this is just as bad.

I can think of many solutions, I'm going to guess at one, there must be a lot of great nineteenth-century technology for electrically operated bells. Suppose the ringer that you see hits near the end of a kind of flexible reed or vane that flexes out of the way of the ringer, and then it is that vane that hits the bell, either on the forestroke carried by momentum or on the backstroke as it flexes backward elastically.

Much detail at The Bell.
The mark consists of the sound of a brass bell tuned to the pitch D, but with an overtone of D-sharp, struck nine times at a brisk tempo, with the final tone allowed to ring until the sound decays naturally. The rhythmic pattern is eight 16th notes and a quarter note; the total duration, from the striking of the first tone to the end of the decay on the final one, is just over 3 seconds.
But I just replayed the YouTube video and I counted 53 64. And it took a lot longer than three seconds.
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by Artsypenguin »

The incident on Tuesday indicates that market structure is much more complex than most people think. This Levine article also reinforces that. Thank you for sharing It
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by dumbmoney »

It makes you wonder whether the 9:31-3:59 trading serves any purpose besides entertainment.
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by PersonalFinanceJam »

nedsaid wrote: Thu Jan 26, 2023 10:19 am
PersonalFinanceJam wrote: Thu Jan 26, 2023 9:58 am
nedsaid wrote: Thu Jan 26, 2023 8:16 am ...
So yes I know that the Bond Market and the Stock Market are two different things. And I know that there really isn't an exchange for most Bonds, some time ago the NYSE provided an exchange for the most liquid Bonds, probably mostly US Treasuries. But I could see a bit of what Nisiprius and Matt Levine are talking about. Maybe if I had been able to purchase my TIPS at noon my time or 3:00 p.m. Eastern Time, I suppose all the sleepy head Bond traders would finally be at work.

So I was left shaking my head. I knew TIPS were less liquid than normal US Treasuries but this was ridiculous. Don't those lazy Bond traders ever show up for work? :wink: I sure couldn't do that with my job, rolling in at 10:15 a.m. or so when I am supposed to be there at 8:00 a.m. :wink: What happened here?
As you said there is no real exchange for bonds so you rely on whatever institution you are working with to have the right bonds in the quantities and price you can work with. Clearly when you were trying Fidelity didn't, but I think if you were to go back now and look at the depth of book for those maturities you would be able to execute your trades. While your response is probably a bit tongue in cheek, I wouldn't expect massive changes in the depth of book on an hour by hour basis. For what it's worth, I too was creating a TIPS ladder but with different maturities. The only issue I ran into was one day prices were changing faster than I could put in orders so I waited until the next day when things were not quite so dynamic.
I did look at the depth of book and chose the listing that had a minimum of one bond and same thing. It was like the depth of book didn't really mean anything. Perhaps if I would have tried on another day, the trades might have gone through. It was just something odd was happening and there seemed no explanation.
We may have ran into the same things then. When I encountered problems I would get an error that the order didn't meet the minimum quantity for the price. Once I had fully reloaded the order screen the prices had all changed and continued to do so with each refresh.
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by nedsaid »

nisiprius wrote: Thu Jan 26, 2023 10:40 am
nedsaid wrote: Thu Jan 26, 2023 8:21 am And while I am at it, how does that bell work that they ring to start the NYSE trading session at 9:30 a.m. and to close it at 4:00 p.m.? I noticed some guy presses a button and a ringer that rotates in circular fashion spins giving the bell the ding, ding, ding, ding, ding, ding, ding, ding sound when it rings. What an enquiring mind wants to know, is how does the ringer work without getting stuck? If you put NYSE closing bell in the search box on YouTube and watch one of the videos, you will see what I mean. The thing is, the actual bell doesn't move, just the ringer. How does that ringer, moving in a circular direction, ring the bell without getting stuck?
And while we are at it, is it the first ding or the last that marks the actual close, and is there a sensor that monitors the sound and cuts off high-frequency trading at the first cycle of the waveform, and do traders bribe corrupt NYSE officials to delay the ding by two milliseconds?

Surely we can't believe that the bell is fake and actually does nothing at all?

Great mystery plot. "I could not have done it, you can see that I was ringing the NYSE closing bell at the time of the crime." "Oho, but I have found that on that day, due to a technical glitch which you bribed an engineer to create, they failed to do it at the appointed and restaged the ceremony for 4:20 pm, giving you plenty of time to dash out, commit the deed, and return."

I never saw it before so I just looked at this one. I once watched a video of people from Vanguard supposedly "closing" the Nasdaq "MarketSite," when they had just launched some ETFs there, and thought it was the most cringeworthy thing I'd ever seen. But this is just as bad.

I can think of many solutions, I'm going to guess at one, there must be a lot of great nineteenth-century technology for electrically operated bells. Suppose the ringer that you see hits near the end of a kind of flexible reed or vane that flexes out of the way of the ringer, and then it is that vane that hits the bell, either on the forestroke carried by momentum or on the backstroke as it flexes backward elastically.

Much detail at The Bell.
The mark consists of the sound of a brass bell tuned to the pitch D, but with an overtone of D-sharp, struck nine times at a brisk tempo, with the final tone allowed to ring until the sound decays naturally. The rhythmic pattern is eight 16th notes and a quarter note; the total duration, from the striking of the first tone to the end of the decay on the final one, is just over 3 seconds.
But I just replayed the YouTube video and I counted 53 64. And it took a lot longer than three seconds.
Yes, I came to the same conclusion that the ringer somehow flexes as it strikes the bell so that it doesn't get stuck. You don't see the bell move at all. Am I the only one who wondered about this? I do see a ball at the end of a thick wire or reed and that seems to be the answer. That wire or reed must flex as the ball strikes the bell. The ball is at one end of the wire or reed and what looks like a spring is on the other side. It is the ball hitting the bell that makes it ring.

The closing bell lasts for 15 seconds, you see the person hit the button and keep his finger on the button until it is straight up 4:00 p.m.

The next question is why the gavel is hit three times after the bell stops.
Last edited by nedsaid on Thu Jan 26, 2023 3:00 pm, edited 2 times in total.
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by nedsaid »

PersonalFinanceJam wrote: Thu Jan 26, 2023 11:46 am
nedsaid wrote: Thu Jan 26, 2023 10:19 am
PersonalFinanceJam wrote: Thu Jan 26, 2023 9:58 am
nedsaid wrote: Thu Jan 26, 2023 8:16 am ...
So yes I know that the Bond Market and the Stock Market are two different things. And I know that there really isn't an exchange for most Bonds, some time ago the NYSE provided an exchange for the most liquid Bonds, probably mostly US Treasuries. But I could see a bit of what Nisiprius and Matt Levine are talking about. Maybe if I had been able to purchase my TIPS at noon my time or 3:00 p.m. Eastern Time, I suppose all the sleepy head Bond traders would finally be at work.

So I was left shaking my head. I knew TIPS were less liquid than normal US Treasuries but this was ridiculous. Don't those lazy Bond traders ever show up for work? :wink: I sure couldn't do that with my job, rolling in at 10:15 a.m. or so when I am supposed to be there at 8:00 a.m. :wink: What happened here?
As you said there is no real exchange for bonds so you rely on whatever institution you are working with to have the right bonds in the quantities and price you can work with. Clearly when you were trying Fidelity didn't, but I think if you were to go back now and look at the depth of book for those maturities you would be able to execute your trades. While your response is probably a bit tongue in cheek, I wouldn't expect massive changes in the depth of book on an hour by hour basis. For what it's worth, I too was creating a TIPS ladder but with different maturities. The only issue I ran into was one day prices were changing faster than I could put in orders so I waited until the next day when things were not quite so dynamic.
I did look at the depth of book and chose the listing that had a minimum of one bond and same thing. It was like the depth of book didn't really mean anything. Perhaps if I would have tried on another day, the trades might have gone through. It was just something odd was happening and there seemed no explanation.
We may have ran into the same things then. When I encountered problems I would get an error that the order didn't meet the minimum quantity for the price. Once I had fully reloaded the order screen the prices had all changed and continued to do so with each refresh.
D-oh!! Didn't think of hitting the refresh button. Oh well, I went back to my original plan, that is of buying 10 individual TIPS Bonds expiring 7/15/2024 and using TIPS ETFs with the remaining funds and targeting a desired duration of 14. The ladder was a nice idea, I may try again when those individual TIPS expire in about a year and a half.
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by talzara »

nisiprius wrote: Thu Jan 26, 2023 7:14 am I think it also underlines that a small retail investor is not participating in price discovery when the decide whether to trade individual stocks or ETFs during the day. They are not even a hangnail on the Invisible Hand. The Invisible Hand is the institutional investors trading 10,000 shares at the open. And that when the popularity of index funds takes me, and a million like me, out of making individual stock trades during the day, it does not interfere with the work of the Invisible Hand. It only interferes with the people who want to sell me stuff that isn't index funds.
The opening auction is important because it cannot be front-run. Everyone puts in their bids and asks, and the auction gets run once.

Some thinly-traded markets don't have continuous trading at all. They just run auctions a few times a day. All the market participants knows that you have to put in your order at specific times. If you miss an auction, then you have to wait for the next auction. There is no liquidity between the auctions.
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by grabiner »

dumbmoney wrote: Thu Jan 26, 2023 10:56 am It makes you wonder whether the 9:31-3:59 trading serves any purpose besides entertainment.
It does, particularly for lower-volume securities. I have often traded low-volume ETFs which had no opening cross, because there were no orders placed before the market opened which could be matched. The pre-market orders just became the opening bid and ask, often in a large spread such as $49.50-50.50. If I had placed a market-on-open order, I would have bought at $50.50 or sold at $49.50, just as if I had placed a market order just after the market opened. When an ETF opens with a large spread, the spread will eventually narrow, to make it worth waiting. (While I don't know which end of the spread will narrow, this just means a 50% chance of benefiting from the whole move rather than a 100% chance of benefiting by half the move.)
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by Lyrrad »

nedsaid wrote: Thu Jan 26, 2023 10:19 am I did look at the depth of book and chose the listing that had a minimum of one bond and same thing. It was like the depth of book didn't really mean anything. Perhaps if I would have tried on another day, the trades might have gone through. It was just something odd was happening and there seemed no explanation.
Since each brokerage can have its own trading mechanism, you can get better prices at different brokerages. For example, TD Ameritrade doesn't seem to have a lot of TIPS available, while they all seem to be available on Fidelity, Vanguard, and Schwab when the market is open. Fidelity and Vanguard seem to offer similar prices, while Schwab (which owns TD Ameritrade) seems to have better spreads.

I don't trade on the secondary market that often. I probably will do more in the future, though since I try to buy and hold to maturity, the small spreads on Treasury Securities isn't that big of a cost amortized over my holding period.

With ETFs, I try to buy the less liquid ones when the bid ask spread seems to be around or below its recent average from the fund's web site. Some brokerages offer better price improvement than others. Vanguard tends to offer very good improvement on its own ETFs, usually giving me the midpoint. However, since I rarely sell except to tax-loss harvest, the incremental benefit tends to be minimal over my holding period.
Northern Flicker
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by Northern Flicker »

nisiprius wrote: Since I don't trade individual stocks, none of this affects me, but I thought it was really interesting.
I think it applies to ETFs as well. The daily auctions are not unlike how the Amsterdam exchange worked in the 17th century. Everyone gathered together at Dam Square and traded amongst each other.
nordsteve
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by nordsteve »

So, to be clear, if I enter a market order now (at the time if this post), it participates in the opening auction tomorrow. Correct?
JohnDoh
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by JohnDoh »

nedsaid wrote: Thu Jan 26, 2023 2:43 pm
nisiprius wrote: Thu Jan 26, 2023 10:40 am
nedsaid wrote: Thu Jan 26, 2023 8:21 am And while I am at it, how does that bell work that they ring to start the NYSE trading session at 9:30 a.m. and to close it at 4:00 p.m.? I noticed some guy presses a button and a ringer that rotates in circular fashion spins giving the bell the ding, ding, ding, ding, ding, ding, ding, ding sound when it rings. What an enquiring mind wants to know, is how does the ringer work without getting stuck? If you put NYSE closing bell in the search box on YouTube and watch one of the videos, you will see what I mean. The thing is, the actual bell doesn't move, just the ringer. How does that ringer, moving in a circular direction, ring the bell without getting stuck?
And while we are at it, is it the first ding or the last that marks the actual close, and is there a sensor that monitors the sound and cuts off high-frequency trading at the first cycle of the waveform, and do traders bribe corrupt NYSE officials to delay the ding by two milliseconds?

Surely we can't believe that the bell is fake and actually does nothing at all?

Great mystery plot. "I could not have done it, you can see that I was ringing the NYSE closing bell at the time of the crime." "Oho, but I have found that on that day, due to a technical glitch which you bribed an engineer to create, they failed to do it at the appointed and restaged the ceremony for 4:20 pm, giving you plenty of time to dash out, commit the deed, and return."

I never saw it before so I just looked at this one. I once watched a video of people from Vanguard supposedly "closing" the Nasdaq "MarketSite," when they had just launched some ETFs there, and thought it was the most cringeworthy thing I'd ever seen. But this is just as bad.

I can think of many solutions, I'm going to guess at one, there must be a lot of great nineteenth-century technology for electrically operated bells. Suppose the ringer that you see hits near the end of a kind of flexible reed or vane that flexes out of the way of the ringer, and then it is that vane that hits the bell, either on the forestroke carried by momentum or on the backstroke as it flexes backward elastically.

Much detail at The Bell.
The mark consists of the sound of a brass bell tuned to the pitch D, but with an overtone of D-sharp, struck nine times at a brisk tempo, with the final tone allowed to ring until the sound decays naturally. The rhythmic pattern is eight 16th notes and a quarter note; the total duration, from the striking of the first tone to the end of the decay on the final one, is just over 3 seconds.
But I just replayed the YouTube video and I counted 53 64. And it took a lot longer than three seconds.
Yes, I came to the same conclusion that the ringer somehow flexes as it strikes the bell so that it doesn't get stuck. You don't see the bell move at all. Am I the only one who wondered about this? I do see a ball at the end of a thick wire or reed and that seems to be the answer. That wire or reed must flex as the ball strikes the bell. The ball is at one end of the wire or reed and what looks like a spring is on the other side. It is the ball hitting the bell that makes it ring.

The closing bell lasts for 15 seconds, you see the person hit the button and keep his finger on the button until it is straight up 4:00 p.m.

The next question is why the gavel is hit three times after the bell stops.
I think the semiotics of the event are that it is (or at least originally was) actually the gavelling that officially terminates the session (think of a gavel in a court of law or a legislature) and the function of the bell is simply to get everyone's attention so that the gavelling is noticed.
Northern Flicker
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by Northern Flicker »

talzara wrote: Thu Jan 26, 2023 9:10 pm The opening auction is important because it cannot be front-run. Everyone puts in their bids and asks, and the auction gets run once.
Correct me if I'm wrong, but I tend to believe that the mechanism makes things fairer for institutional investors, but likely makes things worse for retail traders.
Northern Flicker
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by Northern Flicker »

nordsteve wrote: Thu Jan 26, 2023 11:21 pm So, to be clear, if I enter a market order now (at the time if this post), it participates in the opening auction tomorrow. Correct?
I don't think many retail trades even hit the exchanges these days.
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nedsaid
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by nedsaid »

Lyrrad wrote: Thu Jan 26, 2023 11:05 pm
nedsaid wrote: Thu Jan 26, 2023 10:19 am I did look at the depth of book and chose the listing that had a minimum of one bond and same thing. It was like the depth of book didn't really mean anything. Perhaps if I would have tried on another day, the trades might have gone through. It was just something odd was happening and there seemed no explanation.
Since each brokerage can have its own trading mechanism, you can get better prices at different brokerages. For example, TD Ameritrade doesn't seem to have a lot of TIPS available, while they all seem to be available on Fidelity, Vanguard, and Schwab when the market is open. Fidelity and Vanguard seem to offer similar prices, while Schwab (which owns TD Ameritrade) seems to have better spreads.

I don't trade on the secondary market that often. I probably will do more in the future, though since I try to buy and hold to maturity, the small spreads on Treasury Securities isn't that big of a cost amortized over my holding period.

With ETFs, I try to buy the less liquid ones when the bid ask spread seems to be around or below its recent average from the fund's web site. Some brokerages offer better price improvement than others. Vanguard tends to offer very good improvement on its own ETFs, usually giving me the midpoint. However, since I rarely sell except to tax-loss harvest, the incremental benefit tends to be minimal over my holding period.
It turns out there is a lot of nuance to buying individual Bonds and buying ETFs. Usually, the spreads on ETFs are pretty small, as long as I trade during market hours, I see little effect. I hold for long time periods so I don't worry about it much. I normally just buy shares for myself, can't recall selling any ETF shares, and when I do just place market orders.

When I worked for a Financial Advisor, I started a spreadsheet to track spreads on ETF trades. I experimented a bit with limit orders a few times and it didn't seem to make any difference, the trade just executed. The Financial Advisor, did not trade client portfolios very much. In any case, I took another job and didn't have the chance to trade enough to learn much from the process. The spreads were as tiny as a penny and usually were very small, at most a few cents per share. In any case, we tried not to trade near the open or too near the close of trading.
A fool and his money are good for business.
nordsteve
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by nordsteve »

Northern Flicker wrote: Fri Jan 27, 2023 1:14 am
nordsteve wrote: Thu Jan 26, 2023 11:21 pm So, to be clear, if I enter a market order now (at the time if this post), it participates in the opening auction tomorrow. Correct?
I don't think many retail trades even hit the exchanges these days.
Agreed.

Suppose, though, that I entered a market order for 100 shr GE (NYSE listed) prior to opening. Assume it has enough volume to have an opening auction. Do I get that opening price, without regard to whether the order was sent to the exchange?
Northern Flicker
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by Northern Flicker »

If it is not sent to an exchange, you will get a price based on the bid or ask where your retail broker sends the transaction. The most recent exchange price will influence what an off-exchange broker-dealer is willing to do. There is no payment for order flow from the exchange, so a retail broker offering commission-free trades is unlikely to send your trade to the exchange. What you pay or don't pay (as the case may be) for a commission-free trade is wrapped opaquely into the price.

I tend to think that the opening and closing auctions concentrate price discovery by institutional players into those periods, so that retail traders end up relying on price quotes at other times when trading volume is thinner. The off-exchange broker-dealer executing retail trades would have the same problem, but there is an asymmetry of what information and resources are available to the retail trader and what is available to the off-exchange broker-dealer when each decide on their bids or asks.
talzara
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by talzara »

Northern Flicker wrote: Fri Jan 27, 2023 1:11 am Correct me if I'm wrong, but I tend to believe that the mechanism makes things fairer for institutional investors, but likely makes things worse for retail traders.
Yes, it removes intraday liquidity that retail traders may be relying on. However, some brokerages allow retail traders to participate in the opening or closing auctions as well.

Of course, it doesn't affect buy-and-hold investors like Bogleheads. Before we had ETFs, we used to buy and sell all Vanguard mutual funds at the closing net asset value. Vanguard nets offsetting trades, so it wasn't actually sending all the orders to the closing auction, but the prices were still set by the closing auction.
talzara
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by talzara »

nordsteve wrote: Thu Jan 26, 2023 11:21 pm So, to be clear, if I enter a market order now (at the time if this post), it participates in the opening auction tomorrow. Correct?
Maybe.

Some retail brokerages allow their customers to participate in the opening and closing auctions. Others don't. There are even brokerages that participate in only the opening or closing auction, but not both.
talzara
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Re: Matt Levine on how NYSE works at 9:30 and differently at 9:31

Post by talzara »

nordsteve wrote: Fri Jan 27, 2023 9:13 am Suppose, though, that I entered a market order for 100 shr GE (NYSE listed) prior to opening. Assume it has enough volume to have an opening auction. Do I get that opening price, without regard to whether the order was sent to the exchange?
No, you have to enter an order specifically for the opening auction. Not all brokerages offer this to their retail customers.

For example, Fidelity offers the "on the open" order type, but it only gives you "as close as possible to the opening price." If it were in the opening auction, then you would be getting exactly the opening price, not just "as close as possible."
On the open
A time-in-force limitation that can be placed on an order. This limitation requires that the order is executed as close as possible to the opening price for a security. All or any part of the order that cannot be executed at the opening price is canceled.

https://www.fidelity.com/trading/faqs-order-types
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