SAY NO TO THE NYSE AND ITS RULE CHANGES

Wednesday, the New York Stock Exchange (NYSE) reported that the exchange would no longer offer stop-loss orders, or good-till-cancelled (GTC) orders, thus joining Nasdaq as two of the largest stock exchanges in the world that have now dismissed the necessity of these types of orders. Before we continue, these orders are defined below by Investopedia:

DEFINITION of ‘Stop-Loss Order’:

An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit an investor’s loss on a position in a security. Although most investors associate a stop-loss order only with a long position, it can also be used for a short position, in which case the security would be bought if it trades above a defined price. A stop-loss order takes the emotion out of trading decisions and can be especially handy when one is on vacation or cannot watch his/her position. However, execution is not guaranteed, particularly in situations where trading in the stock is halted or gaps down (or up) in price. Also known as a “stop order” or “stop-market order.”

DEFINITION of ‘Good ‘Til Canceled – GTC’

An order to buy or sell a security at a set price that is active until the investor decides to cancel it or the trade is executed. If an order does not have a good-’til-canceled instruction then the order will expire at the end of the trading day the order was placed.

It doesn’t take a genius to understand why these types of orders would be necessary, if not mandatory, for traders. One places an order to exit the market if losses are occurring, and the other places no time emphasis on the order, it stands until filled. We close every Opening Print with these words: “As always; please use protective buy and sell stops when trading futures and options.” because we believe in the importance of a trader having this protection in place. Does the NYSE believe in this? It doesn’t seem like it. According to a NYSE spokesman:

“Many retail investors use stop orders as a potential method of protection, but don’t fully understand the risk profile associated with the order type,” the spokeswoman said via e-mail. “We expect our elimination of stop orders will help raise awareness around the potential risks during volatile trading.”

The stated reasoning for eliminating these orders was because they were misused. Really? Our nation is governed by a set of laws that are often misunderstood or misused. Does logic suggest that these laws should be abandoned? Eamonn Sheridan from our partner ForexLive had this to say:

“Have you heard the argument about improving the safety of cars and the ‘law of unintended consequences’? That, with airbags, ABS (anti-skid brakes) etc. drivers actually drive faster and less safely because they believe they are safer.

And, thus, it would be better to have a bayonet pointing at the driver’s chest mounted on the steering wheel hub … that would improve driving skills.

This ‘no more stop loss’ orders seems to be along those lines. No?

MrTopStep couldn’t agree more with Sheridan’s analogy, and he continued by stating:

“No word from the NYSE on anything to deal with traders who place and cancel a billion orders a second. They are still encouraging that behavior. ”

Which brings us to ask, what is the real issue here and why? Reuters reported that the “NYSE looks to reduce risks during choppy trading.” By eliminating these orders, and other outlets, commentators suggested that the decision of the NYSE was initiated after the August 24th intraday “crash”. The concern is that when a stop-loss is in place, and a stock opens gap down, that the order may not be executed at best price, or under certain scenarios, not at all. But really, how often do these scenarios occur? Furthermore, if no stop is in place, are traders any better protected? Even in these extreme scenario’s, having eliminated stop-loss orders overall will not be saving investor money.

It sounds like the NYSE’s problem is an educational one from their own admission. So why not introduce an investor educational initiative, perhaps charging brokers with the responsibility of requiring that new account holders be able to pass a simple test of how orders work. Why throw away a useful, nay, necessary protection? We believe that a trader or investor is more vulnerable WITHOUT these types of orders!!!!

Where is the REAL outcry and demand for integrity in the markets? Why focus on these types of orders rather than the ones who chase these orders for a “living”, or place phony orders in the book only to pull them shortly afterward. When will they deal with these and other types of problems that contribute to an unequal playing field. It’s hard to believe with all of the modern innovations, that the NYSE could be concentrating on this current priority, the removal of stop-loss orders. At the end of the day it seems like the NYSE are masking the real problems by creating another problem. The message and disclaimer of the New York Stock Exchange should now be “TRADE AT YOUR OWN RISK!” and “NO STOPS ALLOWED”.

At the end of the day, what the Nasdaq and NYSE are saying is that we can’t, and won’t, do anything about algorithmic and HFT trading and the disruptions they cause because they are our largest customer and turn their backs on the retail / smaller customers that trade their own money. Shame on you Nasdaq and NYSE !!!!!

In Asia 9 out of 11 markets closed higher (Hang Seng +1.13%), and in Europe 6 out of 12 markets are trading mixed (DAX +0.28%). Today’s economic calendar includes St Louis Federal Reserve Bank President James Bullard speech on the economy and monetary policy, in Fort Smith, Arkansas and the Kansas City Fed Manufacturing Index, and earnings from Abercrombie & Fitch Co (ANF), and Foot Locker Inc (FL).

Our View: The ESZ15 finally sold off a little bit but the key word is little. Today is the November options expiration and according to the S&P cash study, today has been up up 20 / down 11 of the last 31 occasions, but after the ESZ15 rallied 90 handles in 3 days we are just not sure how much buying power is left for the expiration. Additionally, the 2:45 cash imbalance came out ‘sell $810 million’, and the Monday after the November options expiration has been up 14 / down 17 of the last 31. That fits with my idea that we see some early weakness before we the ESZ goes back up into the Thanksgiving holiday. Our view, we lean to selling rallies and buying weakness keeping in mind how much the futures have rallied.

See all of the November expiration stats here…

As always; please use protective buy and sell stops when trading futures and options.

• In Asia 9 out of 11 markets closed higher : Shanghai Comp. +0.37%, Hang Seng +1.13%, Nikkei +0.10%.
• In Europe 6 out of 12 markets are trading mixed : CAC -0.04%, DAX +0.28%, FTSE +0.13% at 6:00am CT
• Fair Value: S&P -2.75, NASDAQ -1.12, Dow -33.20
• Total Volume: 1.28mil ESZ and 6.7k SPZ

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