김형래의 개구리운동장

PAY ATTENTION TO THE PLUMBING

Every wonder wht happen to your order to buy stock once you place it with your broker, or hit "send" to an online broker? If you think it goes directly to the floor of the New York Stock Exchange (NYSE) or into the computerized network run by Nasdaq, think again. What happens to your order is one of the mysteries of Wall Street that few people understand. Many orders are matched off-exchange, then centrally reported to an exchange. There is a cost to buying stock, over and above the per-share price you pay. The cost depends on how and where your order id filled. Sometimes the "cost"of trading involves paying a higher price for your shares because your broker failed to route your order to the market with the best selling price. Higher trading costs also result if your broker, or the exchange he sent it to, delayed filling your order and the share price moved against you. Other times your broker may send your order to a market that doesn't have the best price because he received a payment to do so.

Did you ever stop to ask who pays for the army of people buzzing about the NYSE floor every day? Or for the thousands of people working behind the scenes at Nasdaq? If You think it's your brokerage firm or some other third party, wrong gain. As an investor, you pay for all the middlemen, floor clerks, and telecommunications and other electronic apparatus that makes run smmthly. The cost may not be apparent. It may be hidden in the commission you pay for your shares. But it's there.

Both cases - the cost of not finding the best match for your order and the cost exacted by the exchange and its various milddlemen who handle your trade - are called transaction costs. The are costs over whitch you have little control. But that is changing. Transaction costs are cause of much debate and controvery today, and the root of an exchanges gainst new electronic networks; large investment banking firms against the exchanges; and small investors against institutional investors.

We'll learn all about tracation costs and how they affect you. We'll also learn about recent structural changes in the trading costs. I`ll explain the differences between the NYSE ans Nasdaq ; the role of middlemen, such as NYSE specialist and Nasdaq market-makers; and the importance of newfangled system called electronic communication networks, or ECNs. In short, this is where you'll learn about the stock markets plumbing.