It is good to understand the framework in which you are operating.
From Traders Magazine, April 23:
By Lou Pastina, Global Markets Advisory Group Partner, and Bob Walley, recently retired Deloitte Principal and GMAG Partner, with contributions by GMAG Partners Jim Buckley and Dan Labovitz
When I joined the NYSE in 1983 our trading hours were 10 am to 4 pm Monday through Friday. There were still people around who remembered the Exchange closing on Wednesdays and workers coming in Saturdays to compare paper trades because the volume was so overwhelming. Those days we traded under 100 million shares a day and had over 90% market share. It was the early days of ATMs, and I remembered thinking at the time “why can’t I put an order in to buy or sell stock right here in the ATM?”.
The infrastructure of the market at the time included a regulatory framework that required a broker dealer to be a member of an Exchange and be bound by the rules of the Exchange which included only trading with its members. Trading floors were populated by human beings negotiating trades; back offices were populated by armies trying to figure out what the traders had written down on small slips of paper. Technology was confined to electronically distributing quotes and trades to tickers around the world. Some firms harnessed the power of sending orders electronically to Exchanges where they would print out and be represented orally. Batch processing was the main way things got moved along the factory line. Paper was everywhere.
Once the paper order was taken to the floor and executed, the orders were sent to DTCC for clearing. In 1983 National Association of Securities Dealers and the exchanges adopted the New York Stock Exchange Rule 387, which mandated the use of automated confirmation and book-entry settlement for Cash on Delivery transactions in equity securities between brokers, dealers and their institutional clients.
Recently, with significant help from the government, new volume records were established in the listed equity markets. Over 26 billion shares changed hands in one day. About 55 percent was done through Exchanges, the balance through Alternative Trading Systems, Wholesale Broker Dealers and other associated players in the market. All the activity was reported electronically in real time to the clearinghouse and to the consolidated tape associations for distribution to the world. Trades were settled on T+1 after a move from T+2 in 2024; Europe continues to settle in T+2. Literally unthinkable when I started on Wall Street.
Today, we order most of what we want through Amazon, with a clear expectation that our order will be delivered to our doorstep tomorrow, and sometimes even the same day. I don’t think we are alone in this respect. Doesn’t matter the time of day, we can order at any time with the same expectation. Is it any wonder that Amazon, along with perfecting the assembly line of ordering, fulfilling, and delivering, also operates the world’s largest cloud server systems? Old-world investors buy and hold, even in times of great distress, such as we are experiencing today. We were taught a long time ago, that a loss is only a loss if it is “locked-in”, and by that, I mean if the security is sold. Apparently, old-world investors may be in the minority because someone decided to sell 26 billion shares of stock last week, even in the face of steep losses. Amazingly the infrastructures of the Exchanges, Broker Dealers, Clearinghouse and Ticker Plants all held up to the task of processing that data. One can only assume that the Consolidated Audit Trail System (CAT) also held up (processing over 1T records). Interestingly enough, the CAT is powered by Amazon Web Services (AWS). I wondered how many people would have kept selling if the market didn’t actually close, if it continued to be open 24 X 7 just like Amazon? Would people continue to sell all weekend long as well?
There were times in the past when a “cooling off” period really helped the market think about what had just happened. A weekend gave people time to reassess the situation and to make rational decisions in terms of their portfolios and risk profiles. When trades cleared overnight, they provided enough liquidity for new trades and capital requirements to be met. One of the big projects at the NYSE in the early 1990’s was to look at off-hour trading, as it was called back then. As Exchange rules melted under regulatory pressure to modernize and pressure from competitive members, trading began to migrate offshore, big blocks paired by big brokers making big commissions found their way to London to be printed overnight. Repatriating that volume was the primary goal, assuaging members was a secondary one, and trying to slow the pace of technology may have been a tertiary one. But the pace of competition and technology cannot be slowed. The NYSE decided, with help from West Coast firms, that opening early at that time was not worth it. We launched some after-market trading vehicles, but that kept the wolves at the door for only so long. Soon, Alternative Trading Systems were ushered in by entrepreneurs spurred on by an anxious regulatory staff looking for change. They pushed the envelope and made everyone more competitive; they also opened early and allowed trading to continue later.
Robinhood helped democratize the stock market for everyday people. Enough horsepower is in the palm of the hand of today’s average person to get someone to the moon in 1969. So, it’s no wonder that people would want to have the same experience buying and selling stocks that they would ordering from Amazon. Back when the NYSE was an independent member owned firm it would build strategic plans. The list of our top competitors would include other Exchanges and competitive firms, but our CEO at the time would point out that the top competitor was not another market or a broker dealer, it was Microsoft. He knew that even then. Today I would say take your pick: Amazon; Google; Microsoft; Musk?
The broad ecosystem infrastructure is not yet ready for 24 x 7 trading. Yes, many of the Exchanges advocate they can be open for 22 or 24 hours a day, but that is not presently the case with the majority of the other market participants....
....MUCH MORE
Apropos of not much I found myself thinking of Bunker Hunt, the Chicago Board of Trade, the Comex and this little tale from 2010's "'Wheat prices ease after Russia predicts stable exports" and '...Speculators ‘Hunt What’s Moving'":
....Should prices see $8.50 the opportunities on the short side would almost be a lock.I say almost because the serious money in commodities can pretty much get prices to where they want them, at least for short periods.When the Billionaire Hunt brothers were attempting to corner the silver market in January 1980 the head of one of the world's largest grain traders said "Those boys don't know what deep pockets are".The "commercials" had been shorting into the Hunt bros. buying and the grain trader was at the top of the "commercial" heap.On January 21 the COMEX went "liquidation only".On January 22 the CBOT went "liquidation only".On Tuesday the 22nd silver closed at $34, down 27% from its close the previous Friday.The Hunt's still had enormous paper profits but any attempt to book them would smash the markets even further.Prices declined to $17 by March, down 66% from the January high and the Hunt's were receiving calls of $60 Million per day in variation margin. On March 27 the price dropped from $21.62 to $10.80 and one of their brokers, Bache was in violation of net capital requirements and another, Merrill Lynch was on the brink.As the attorneys got involved over the next few years, oil prices headed south, destroying the value of Daddy's creation (and the brother's piggybank) Placid Oil.Bunker Hunt filed for bankruptcy in September 1988 as did his brother and Placid.At the time the grain trader said "Those boys don't know what deep pockets are" it is probable that the various branches of the Hunt families comprised the wealthiest "family" in America.That's why I say "almost" a lock.
Then it was, "A Heads-Up To The Gamestop, AMC etc. Crowd: They Are Going to Change The Rules On You":
Which was followed the very next day with:Market structure is the most important and least understood factor in the entire short-squeeze game.
And if you don't understand every dependent clause and every comma versus period in the rules and regs you are in for a shock.
That's what the homely little story in "Discord has shut down the /r/WallStreetBets server (GME)" is all about....
Interactive Brokers Goes "Liquidation Only" On AMC, BB, EXPR, GME, and KOSS Options
Possibly related, November 2019
The optimal design of Ponzi schemes in finite economies
Utpal Bhattacharya
Abstract
As no rational agent would be willing to take part in the last round in a finite economy, it is difficult to design Ponzi schemes that are certain to explode. This paper argues that if agents correctly believe in the possibility of a partial bailout when a gigantic Ponzi scheme collapses, and they recognize that a bailout is tantamount to a redistribution of wealth from non-participants to participants, it may be rational for agents to participate, even if they know that it is the last round. We model a political economy where an unscrupulous profit-maximizing promoter can design gigantic Ponzi schemes to cynically exploit this “too big to fail” doctrine. We point to the fact that some of the spectacular Ponzi schemes in history occurred at times where and when such political economies existed—France (1719), Britain (1720), Russia (1994), and Albania (1997).
The original ScienceDirect link has rotted but here's an earlier version at SSRN.
