Busted trade? Why?

D

Dominic

Question: On 10/13/2005 at 9:25 a.m. I bought 500 shares of RAIL at $32.75 through INET. It was offered on the ask and was showing 100 shares which kept refreshing. I could have bought more but didnt. At $32.75, it was down -17% compared to previous day close. I called my broker 1/2 hour later and wanted to make sure that the trade was NOT busted; they said that they havent received anything. I was told that usually if the trade was going to be busted that they would hear from INET within 20-30 minutes. I sold the postion at $39 at 11:00 am, 1 1/2 hours later. I then received a call from my broker 2 hours from the orginal trade that the trade was busted and that I was actually illegally short the stock.

Does that sound right? Is there anyway to check and see if the trades premarket where actually busted? How do I know that my broker isnt trying to pull one on me? I was once told by broker that that usally trades within +/- 20% in pre/after market wont be busted. Seems to me that someone could really manipulate the market by placing a order to sell (short) and then take out stop loss orders, only then have the trades busted; espically in a stock that really doesnt trade that much volume.
 
Quote from Dominic:

I called my broker 1/2 hour later and wanted to make sure that the trade was NOT busted; they said that they havent received anything.
More...

INET normally reports busts at around 10:30am EST. For a $30 stock, the busting window is 3% off. So since you bought more than 3% off the previous close, you should have waited until 10:30am EST at the earliest to close the position. I have had trades busted days late by INET.

The counterparty to your trade probably called in immediately to bust the trade, but INET takes their sweet old time in determining whether the trade should stand. It seems like they let the stock trade awhile before making up their minds. It has been my experience that it is pretty much a bogus process - most of the time expect to be screwed.
 
dude .... that must of been some software glitch
or something that caused those prices to be so far off ...

before you bought those shares ... what were they trading at pre market ?

I do not think you have a leg to stand on in this case ...

this is not 1999 and a dotcom stock you traded
after earnings ...

ps ... get a new broker who can give you more
accurate info

- I was once told by broker that that usally trades within +/- 20% in pre/after market wont be busted.-

:p
 
"I have had trades busted days late by INET"


If you closed out the position before they came back a day later and busted the trade, did that leave you short/long the stock or did they break the other side also?
 
Quote from Dominic:

"I have had trades busted days late by INET"


If you closed out the position before they came back a day later and busted the trade, did that leave you short/long the stock or did they break the other side also?
More...

If you decide to close out the bustable position and then INET comes back with a bust ruling later on, then you are stuck with your actions. You can't unroll the other side because later you found out that the other side was busted. So you are left short/long the stock in this case. If you want to be conservative, always wait a sufficient amount of time before closing out the position. With INET, waiting til 10:30am EST seems to cover most cases.
 
"dude .... that must of been some software glitch
or something that caused those prices to be so far off ...

before you bought those shares ... what were they trading at pre market ?

I do not think you have a leg to stand on in this case ...

this is not 1999 and a dotcom stock you traded
after earnings ...

ps ... get a new broker who can give you more
accurate info "


I dont think it was a software glitch; RRA (Rail America) had reported earning that morning pre market and it seemed to me that someone was trying to take out stop loss orders right before the bell when I bought RAIL

It smells to me; say that I'm an MM and want to take out some stops in a low volume stock on an earnings play: I place a refreshing short sale well below the previous day close, stops get taken out and others enter the stock. They then sell 2 hours later to close position only to have their trade busted which leaves them illeagally short the stock. I then start a run up on the stock 3 hours later, making them cover their short position for a loss. I'm sure its happened before.



My broker is CyberTrader, Charles Shwab; if they cant give me more accurate info I dont know who can.
 
Quote from Dominic:

I dont think it was a software glitch; RRA (Rail America) had reported earning that morning pre market and it seemed to me that someone was trying to take out stop loss orders right before the bell when I bought RAIL

It smells to me;
More...

Yes, this kind of crap is unacceptable. On earnings announcements, it seems like INET should relax its busting policies but they don't - they go by the book. I got a nice fill on HD on an earnings report once that got busted several hours later by INET. I was the first fill after the earnings announcement - who knows where it should have been trading? Apparently INET knows. At the time, I wasn't convinced that I had made a good trade. It was only in retrospect that it was good. And yet INET still busted.


My broker is CyberTrader, Charles Shwab; if they cant give me more accurate info I dont know who can.
More...

I bet you somebody at CyberTrader knows whats up. But most customer support people at brokerages are probably not well versed in busting policies of individual ECNs.
 
I've read several stories about trades being busted by INET - seems like a good reason to stay away from them. It's been many years since I traded through ISLD, but this practise sounds completely ridiculous. Does ARCA have the same system in place?

Just to tell a story from my local exchange: The only time they bust trades is when a broker clearly enters the wrong number and moves the market in a stock more than 10%. The stock is then halted immediately, and everyone told about their busted trade before trading commences in the stock. A much better way to deal with the whole thing imho.
 
You must log in or register to reply here.
Back
Top