Did I buy from a tradebot?

F

fbell50

On 2/9/07 I had an order working to buy some NEW at 16.21 on Island. At 12:35:03 2800 executed on the NYSE at prices under 16.21 and immediately following I bought 2800 at 16.21.

Did some tradebot buy on the NYSE and sell to me, or is this just a coincidence?

I have enclosed a T&S below leaving out some executions at prices higher than 16.21 before the last two executions. I have confirmed that my order became the NBB immediately following the NYSE executions so that I am not entitled to trade through protection.

T&S in reverse chronological order
12:35:04 S 100 16.21
12:35:04 S 100 16.21
12:35:03 S 100 16.21
12:35:03 S 2500 16.21
12:35:03 N 800 16.25 E
12:35:03 N 200 16.16 E
12:35:03 N 100 16.15 E
12:35:03 N 200 16.16 E
12:35:03 N 100 16.16 E
12:35:03 N 1200 16.17 E
12:35:03 N 1200 16.20 E
 
Is this post an attempt to sound intellectual? Trade bot? What the hell is that?

There's so many players in the game; to try and figure out who took your trade is inconsequential. You should be more concerned with whether your setup was correct to make a reasonable profit.

If you're trading in severely illiquid equities, yeah, you are probably being scalped by a market maker.
 
Seems like you have stumbled upon a technique for specialists to steal from the public.

Suppose you have a buy order on an ECN, for some illiquid listed stock. The specialist receives a matching sell order. He doesn't want the two orders to interact directly, as they would in a free market, because the specialist needs to "wet his beak". He needs to pay for things like his kids, his wife, his girlfriend, his employer's bribes (I mean campaign contributions) for senators and congressmen, etc., etc.

The specialist would like to buy from the seller at below the market, and then sell to you, thereby seizing a risk-free, immediate profit. He can't simply trade thru your order, because this would violate the trade-thru rule, and would allow you to submit a trade-thru complaint. So he causes a bogus buy order to appear on some ECN, at a higher price than your own order, for just a brief instant. He is confident that the bogus order won't execute, during this brief instant, because the stock is illiquid. The bogus order is now entitled to trade-thru protection, instead of your own order. He can now simply trade-thru the bogus order, and not worry about a trade-thru complaint. He can do this, because he knows that the person controlling the bogus order won't submit a trade-thru complaint: he knows because it is the specialist himself!

So the specialist can short-circuit the trade-thru rule. An inverse strategy can also be used to cheat you and the contra party when you are representing a sell order and the contra party is a buyer sending his order to NYSE. I suppose similar specialist strategies will be available under Regulation NMS, when it becomes fully effective, because NMS also denies trade-thru protection to orders at prices inferior to the top-of-book.

One small problem is that this strategy would violate criminal prohibitions against manipulation of securities markets. It is a small problem, very easily solved. The specialist does not place the bogus buy order through an account traceable to himself. He instead places the bogus buy order through the account of an accomplice.
 
Quote from jimrockford:

Seems like you have stumbled upon a technique for specialists to steal from the public.

Suppose you have a buy order on an ECN, for some illiquid listed stock. The specialist receives a matching sell order. He doesn't want the two orders to interact directly, as they would in a free market, because the specialist needs to "wet his beak". He needs to pay for things like his kids, his wife, his girlfriend, his employer's bribes (I mean campaign contributions) for senators and congressmen, etc., etc.

The specialist would like to buy from the seller at below the market, and then sell to you, thereby seizing a risk-free, immediate profit. He can't simply trade thru your order, because this would violate the trade-thru rule, and would allow you to submit a trade-thru complaint. So he causes a bogus buy order to appear on some ECN, at a higher price than your own order, for just a brief instant. He is confident that the bogus order won't execute, during this brief instant, because the stock is illiquid. The bogus order is now entitled to trade-thru protection, instead of your own order. He can now simply trade-thru the bogus order, and not worry about a trade-thru complaint. He can do this, because he knows that the person controlling the bogus order won't submit a trade-thru complaint: he knows because it is the specialist himself!

So the specialist can short-circuit the trade-thru rule. An inverse strategy can also be used to cheat you and the contra party when you are representing a sell order and the contra party is a buyer sending his order to NYSE. I suppose similar specialist strategies will be available under Regulation NMS, when it becomes fully effective, because NMS also denies trade-thru protection to orders at prices inferior to the top-of-book.

One small problem is that this strategy would violate criminal prohibitions against manipulation of securities markets. It is a small problem, very easily solved. The specialist does not place the bogus buy order through an account traceable to himself. He instead places the bogus buy order through the account of an accomplice.
More...


How does this work in this example?
The prices were the same.
 
Quote from RiceRocket:

Is this post an attempt to sound intellectual? Trade bot? What the hell is that?

There's so many players in the game; to try and figure out who took your trade is inconsequential. You should be more concerned with whether your setup was correct to make a reasonable profit.

If you're trading in severely illiquid equities, yeah, you are probably being scalped by a market maker.
More...

So true. Funny how many ETers think they alone (or the ET community et al) have affect on the market. Or this time, that they alone are target of the market (or the ET community et al) :D
 
Quote from galiano:

So true. Funny how many ETers think they alone (or the ET community et al) have affect on the market. Or this time, that they alone are target of the market (or the ET community et al) :D
More...

Your efforts to ridicule this thread's starter do not make any sense. Nobody ever suggested that he alone had effected the market, or had been targeted by the market. It also sounds as though you are totally ignorant about market crimes, and especially about crimes committed by specialists.
 
Quote from jimrockford:

Your efforts to ridicule this thread's starter do not make any sense. Nobody ever suggested that he alone had effected the market, or had been targeted by the market. It also sounds as though you are totally ignorant about market crimes, and especially about crimes committed by specialists.
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Agreed, the original post seemed to me just to be borne out of simple curiosity. But no, let's not help him, let's just jump down his throat instead.

What the hell is wrong with people?
 
Quote from jimrockford:

Seems like you have stumbled upon a technique for specialists to steal from the public.
More...

Thanks for the detailed description of one way my order might have been arbitraged (or I guess I should say cheated since that’s what you describe.). I don't think I was the victim of any specialist's shenanigans.

I recently read an article on TradeBot systems. This is a trading firm that accounts for as much as 5% of all Nasdaq trading using proprietary algorithms that sound like fancy scalping. I just wondered if anyone might recognize this setup as one that scalping programs commonly exploit. It seems a classic case to me, but if so then it means the scalping program must have had access to my quote before it became the best bid and simultaneous access to the NYSE.

So the scenario would be something like this:
12:35:03 Nasdaq Best bid 16.22 (my order 16.21 is present)
12:35:03 Nyse executes some at 16.21, filling the Nasdaq 16.22
12:35:03 The tradebot recognizes a potential scalp and posts bids .01 above best NYSE bid.
12:35:03 A quick flurry of sell orders hit the tradebot’s bids
12:35:03 The tradebot turns around and sells to my now best bid.

Perhaps this takes place in 3-5 ms and works because the tradebot is faster than the NYSE to recognize the new best bid because the NYSE has just taken out the previous best bid and hasn’t gotten around to updating its Nasdaq quote. If no orders hit the tradebot’s bid within some time period (perhaps a few ms or perhaps if my 16.21 order disappears) then it cancels its order.
 
Quote from jimrockford:

It is a small problem, very easily solved. The specialist does not place the bogus buy order through an account traceable to himself. He instead places the bogus buy order through the account of an accomplice.
More...
How would this work on the floor? Do the specialists have Internet access or Blackberries or something that they use to communicate with the accomplice?
 
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