Skip to main content

Spreads




The move of US exchanges into penny pricing in the 1990s is sometimes given credit for lessening something called a "spread," and thus to a degree the price of purchased securities. Let's pause on this point.


The spread is the difference between the bid and ask prices at any moment: that is, the highest price that a would-be buyer has offered (that no one yet has accepted) on the one hand, and the lowest process that a would-be seller has asked for (with the same qualification, which I will hereafter drop) on the other.


Books and articles and even blog posts that purport to teach you how to trade -- and this is emphatically not one of them -- will talk a good deal about which one of you should be the one to "cross the spread." It can all sound a bit like the musings of the wallflowers at a junior high school dance.


As prices came to be quoted in smaller and smaller increments, there were (as the SEC expected there would be) greater opportunities for traders or dealers to improve their spread. Thus, the spreads sank under competitive pressure.


That sounds like a good thing. Indeed, Arthur Levitt, the chairman of the SEC in March 2000, said that that was the point, "As more competitive bidding ensues, naturally the spread become smaller. And this means better, more efficient prices for investors."


The only possible flaw in that logic would be if those higher spreads paid for something valuable, and if that something valuable, no longer priced-for, is no longer available., to the loss of those who would happily have made the purchase.


What might that something be?

Comments

Popular posts from this blog

England as a Raft?

In a lecture delivered in 1880, William James asked rhetorically, "Would England ... be the drifting raft she is now in European affairs if a Frederic the Great had inherited her throne instead of a Victoria, and if Messrs Bentham, Mill, Cobden, and Bright had all been born in Prussia?"

Beneath that, in a collection of such lectures later published under James' direction, was placed the footnote, "The reader will remember when this was written."

The suggestion of the bit about Bentham, Mill, etc. is that the utilitarians as a school helped render England ineffective as a European power, a drifting raft.

The footnote was added in 1897. So either James is suggesting that the baleful influence of Bentham, Mill etc wore off in the meantime or that he had over-estimated it.

Let's unpack this a bit.  What was happening in the period before 1880 that made England seem a drifting raft in European affairs, to a friendly though foreign observer (to the older brother…

Cancer Breakthrough

Hopeful news in recent days about an old and dear desideratum: a cure for cancer. Or at least for a cancer, and a nasty one at that.

The news comes about because investors in GlaxoSmithKline are greedy for profits, and has already inspired a bit of deregulation to boot. 

The FDA has paved the road for a speedy review of a new BCMA drug for multiple myeloma, essentially cancer of the bone marrow. This means that the US govt has removed some of the hurdles that would otherwise (by decision of the same govt) face a company trying to proceed with these trials expeditiously. 

This has been done because the Phase I clinical trial results have been very promising. The report I've seen indicates that details of these results will be shared with the world on Dec. 11 at the annual meeting of the American Society of Hematology. 

The European Medicines Agency has also given priority treatment to the drug in question. 

GSK's website identifies the drug at issue as "GSK2857916," althou…

Francesco Orsi

I thought briefly that I had found a contemporary philosopher whose views on ethics and meta-ethics checked all four key boxes. An ally all down the line.

The four, as regular readers of this blog may remember, are: cognitivism, intuitionism, consequentialism, pluralism. These represent the views that, respectively: some ethical judgments constitute knowledge; one important source for this knowledge consists of quasi-sensory non-inferential primary recognitions ("intuitions"); the right is logically dependent upon the good; and there exists an irreducible plurality of good.

Francesco Orsi seemed to believe all of these propositions. Here's his website and a link to one relevant paper:

https://sites.google.com/site/francescoorsi1/

https://jhaponline.org/jhap/article/view/3

What was better: Orsi is a young man. Born in 1980. A damned child! Has no memories of the age of disco!

So I emailed him asking if I was right that he believed all of those things. His answer: three out of …