Ray, when an order is shipped, does the sender or receiver own the order?(me?) When an order gets stuck, there's been a lot of finger pointing between markets or in some cases a declaration of self help.

by John on April 3, 2007 2:56 PM

Ray,

I read an article linked in one of your recent posts that a new version of hybrid is going to be rolled out. Is there a time table for that rollout? Also, when does NYSE plan to increase their execution speed. It would be nice if my orders filled faster than a computer was able to pull its order.

by Ron on April 4, 2007 1:49 PM

Ray, will the NYSE continue to roll out new versions of the "Hybrid" as they adjust to all the new changes? Thanks, and happy holiday.

by tony dey on April 5, 2007 8:17 PM

"Also, when does NYSE plan to increase their execution speed. It would be nice if my orders filled faster than a computer was able to pull its order."

I feel your pain: been there done that, and on very liquid stocks too.
If you meant that the counter-party pulled out his bid or offer **because**--and therefore after--you tried to hit it, then maybe you're touching on the subject of the proliferating trading bots :-)

Look at it this way: if he saw your order AND cancelled, it follows that your order was there already! It's not a computing problem for the NYSE, it's a compliance problem for the SEC.

Or maybe you mean that there is such a lag that the bot has time to cancel its quote before the NYSE system can "close the deal" so to speak. Granted, it may be that the trading bot is so fast (or the NYSE exec system a bit slower) that the lag is sufficient to be exploited, but it still is a violation of the rules in some conditions, if he was the best quote and your order fell within the rules for matching it.

I'm no lawyer (and I don't play one on TV either) but when the rule say that a quote has to be honored in certain conditions, it doesn't mean or say that this does not apply in cases where a trading bot can pull a bid/offer faster than the execution system can physically execute the transaction.

The solution may be purely technical, although I believe that enforcement would do it too, but it would not be sexy like going after Martha Steward for $22K or whatever the hell they went after her for :-)

As a former database geek, I know that it's possible to put "locks" on db transactions. So we can imagine a scenario where the order exec system would put "locks" on sequentially matching incoming orders **before** the transaction is "announced" on the system, thus making "illegal" cancellations impossible. It would not impair the current system or anyone cancelling their orders at any time--unless already matched-- but it would neutralize those who welsh on their obligations as per SEC rules. This happens too many times every day to be ignored.

by Randy on April 7, 2007 6:41 PM

Thanks for replying Randy. It would be nice if Ray actually replied to some of our concerns.

I think its both a NYSE computing problem and a compliance problem for the SEC. I did file a complaint with the SEC a couple weeks ago requesting an investigation, but got more or less of an automated response saying to call them. In my letter I explained situations where smaller offers were placed at lower prices and larger offers were programmed to pull once the smaller offer got paid. For example, if I wanted to buy 1000 shares and 200 are at 62.34 and 800 at 62.35. If I put a bid in at 62.37, I would get a fill for 200 at 62.34, but then the 800 at 62.35 would pull. I would then get hit for 800 at my price of 62.37, but then offers would come right back to 62.35 (this would all happen in a split second). Basically for the majority of my orders I was getting robbed for 1 or 2 cents. This may not seem like much, but when I trade 1-2 million shares a month....that's significant cash.

Now it is rare that any bids or offers are honored. I first noticed problems with orders pulling/lifting when the open book when live on May 1, 2006. Now it seems like manipulation and other violations are rampant. The playing field is no longer level.

I hope the SEC takes action soon. The NYSE has turned into a disaster.

by Ron on April 9, 2007 12:43 PM

"Thanks for replying Randy. It would be nice if Ray actually replied to some of our concerns."

That's unfair. From what I see, he does reply to almost everyone, and does a good job of it too.

I trade small size and I have seen what you describe happen with even one or two lots. The only time you can be 100% sure that there is foul play is when there are no other prints whatsoever at the time your order hits. I have verified it in these conditions.

If you have a system that can put many "non-honorable" quotes in various volumes and on ranges of various issues in accordance to your own goals and specs, you could do some very nifty things indeed. And it seems that some people are doing it, and at no risks :-)

This essentially constitutes price manipulation since the existing "honor your quote" rule is there to insure that the price is "real", even if only for one lot. There are no doubts that quotes are "off" on many issues due to this.

Again, enforcement is probably feasible since there are ways to electronically track orders, but how do you prove for certain that an order was pulled in bad faith? I'm not sure about the tech aspect of this. It seems to me that the black box operator has an inherent tech advantage over huge systems like the NYSE or NAZ that have to handles millions of quotes and transaction each second. Bottom line: if a chink exists in the armor, it will be exploited.

This is why I floated the idea of a "match, lock and advertise" transaction flow. As the system exists now, it seems to me that it advertises (display incoming orders for all to see), if appropriate matches them to existing bids/offers and then only "locks" matching orders.

Don't know if it makes any sense to NYSE people but it would beat spotty or uncertain enforcement by the SEC. Unless we can get Martha Stewart to do it of course...

by Randy on April 9, 2007 5:56 PM