Fraud: Broker kind of "frontruns" client order. Reporting to SEC?

[thecoder]

Man I don't have any conditional order, nada, there is no other order!
And unsettled cash is it neither.
Man, I wrote that after my complaint the error has been fixed by the broker people. I even have posted here their funny answer, just read it and have a laugh, especially about the grammer errors like "its" instead of "it's"

 

[traider]

The broker and the market makers have realised that the fair put is going to put them out of business soon. They are rejecting thecoder's orders for now and trying to find a way to silence him.

 

[engineering]

And I'll let you in on another little secret..... you may have a "cash account", but there is in fact a little known margin feature applied to these. That feature allows you to close an option position, and open another position with the unsettled funds as long as you hold that new position overnight.

If you screw that up, they will remove that feature from your account and not tell you. Hence you can place your new order and it doesn't show up on the bid because you are trying to use unsettled funds. If it is a GTC order, then it stays in the system and doesn't update itself the next day when the previous trade's funds actually settle.

Don't tell me I'm talking bs son... I know wtf I'm talking about.
You don't.
Obviously.

How does that possibly explain an order not showing up for a week?
Isn't the settlement period for options the next day?

You're saying they'll hold an order forever with no visible indication to the customer, while actually showing it to the customer as an open order. How is that not fraud?

You seem to be making a lot of assumptions and then considering them as facts. If what you describe was happening, why not tell him that when they "fixed" it?

 

[vanzandt]

How does that possibly explain an order not showing up for a week?
Isn't the settlement period for options the next day?

You're saying they'll hold an order forever with no visible indication to the customer, while actually showing it to the customer as an open order. How is that not fraud?

You seem to be making a lot of assumptions and then considering them as facts. If what you describe was happening, why not tell him that when they "fixed" it?

You are in fact correct, I am making one assumption here in this addendum to my original post which you quoted regarding what his problem is.

That (assumption) is a GTC order once placed, if that order realizes that the client has other open orders that supersede the clients available buying power when that order is placed, then the new GTC order will not be routed to any of the exchanges. That part I know is correct.

My assumption regarding that is that the broker's system won't update that order the next day to then reflect settled funds. They're not perfect by any means, and little off the wall things like this get overlooked by the in-house geeks that build the software. But again, you are right, I AM making an assumption here.

With that said however, I am 100% right in saying that any open orders, and/or conditional orders, subtract from one's purchasing power and hence a new order that is placed... even though the system accepts that order, it is NOT routed to any exchange and he will therefore not see his higher bid show up on the particular strike he is trying to purchase.

Regarding his post where both you and he mentioned they "fixed it", I did in fact miss that post apparently. I skim through these things quite fast. Save me a few minutes and link that post. Thnx.

 

[engineering]

Regarding his post where both you and he mentioned they "fixed it", I did in fact miss that post apparently. I skim through these things quite fast. Save me a few minutes and link that post. Thnx.

Thanks for taking the time to explain.
I find that I can learn a lot about how the markets actually by following threads like this.

 

[Cabin111]

Coming in late with my two cents. From the original poster, I have seen this for years...And yes, I have call my broker plenty of times. I do covered calls...On boring stocks. Many times they are leaps...Bid/ask is like 60-80 cents apart. I will put in my price somewhere in the mid point (either a Schwab or Fidelity) and wait. If it's at Schwab, I check at Fidelity IN A FEW MINUTES!! My ask price has not showed up at the other broker!! I can understand routing to MMs and getting kickbacks...All part of the process for someone not willing to go other routes.

Here is the thing that I think is illegal and should be questions by the SEC. After my order has been given to the preferred MM, it should then go to the general market. It should go to all MMs or the general market. I SHOULD BE ABLE TO SEE MY BID/ASK SHOW UP AT FIDELITY OR SCHWAB WHILE I AM WAITING FOR MY PRICE...Before I make an adjustment. The broker I put it with...It will show it...But not the other broker...So I know I am not dealing with a full deck!!

So if anyone can...Please explain what happened?? I know these brokers are not a fiduciary, but the above is wrong. It should be looked into...

 

[engineering]

Coming in late with my two cents. From the original poster, I have seen this for years...And yes, I have call my broker plenty of times. I do covered calls...On boring stocks. Many times they are leaps...Bid/ask is like 60-80 cents apart. I will put in my price somewhere in the mid point (either a Schwab or Fidelity) and wait. If it's at Schwab, I check at Fidelity IN A FEW MINUTES!! My ask price has not showed up at the other broker!! I can understand routing to MMs and getting kickbacks...All part of the process for someone not willing to go other routes.

Here is the thing that I think is illegal and should be questions by the SEC. After my order has been given to the preferred MM, it should then go to the general market. It should go to all MMs or the general market. I SHOULD BE ABLE TO SEE MY BID/ASK SHOW UP AT FIDELITY OR SCHWAB WHILE I AM WAITING FOR MY PRICE...Before I make an adjustment. The broker I put it with...It will show it...But not the other broker...So I know I am not dealing with a full deck!!

So if anyone can...Please explain what happened?? I know these brokers are not a fiduciary, but the above is wrong. It should be looked into...

Are you trading one or more round lots? (The following assumes yes. Which seems like a reasonable assumption since you're seeing the bid change on at least one broker in response to your order.)

My personal opinion (my not be correct) as follows:

As far as I can tell, you're getting screwed by payment for order flow and cheating.

Here are the rules that sound like they may be being broken:
A) SEC regulation NMS, specifically the order protection rule
https://www.investopedia.com/terms/o/order-protection-rule.asp
B) SEC regulation NMS, NBBO requirement, that mandates the order by routed for the best price
https://www.investopedia.com/terms/n/nbbo.asp

I can imagine the firms being able to talk their way out brief divergences between you order and the best bid showing up in the market data, but I don't see how they can talk their way out of it being hidden for more than a few minutes. I know different exchanges can have different rules, but the SEC regulations require that those rules be implemented in such a way as to support the SEC requirements.

If you want the specific regs:
https://www.sec.gov/rules/final/34-51808.pdf
Quotes are from the summary section, it gets more detailed further in:
"The Order Protection Rule (Rule 611 under Regulation NMS) establishes intermarket protection against trade-throughs for all NMS stocks. A trade-through occurs when one trading center executes an order at a price that is inferior to the price of a protected quotation, often representing an investor limit order,displayed by another trading center."

"Moreover, a trading center is required to regularly surveil to ascertain the effectiveness of its policies and procedures and to take prompt action to remedy deficiencies."

"Finally, Rule 610 requires SROs to establish, maintain, and enforce written rules that, among other things, prohibit their members from engaging in a pattern or practice of displaying quotations that lock or cross the protected quotations of other trading centers."

 

[traider]

Are you trading one or more round lots? (The following assumes yes. Which seems like a reasonable assumption since you're seeing the bid change on at least one broker in response to your order.)

My personal opinion (my not be correct) as follows:

As far as I can tell, you're getting screwed by payment for order flow and cheating.

Here are the rules that sound like they may be being broken:
A) SEC regulation NMS, specifically the order protection rule
https://www.investopedia.com/terms/o/order-protection-rule.asp
B) SEC regulation NMS, NBBO requirement, that mandates the order by routed for the best price
https://www.investopedia.com/terms/n/nbbo.asp

I can imagine the firms being able to talk their way out brief divergences between you order and the best bid showing up in the market data, but I don't see how they can talk their way out of it being hidden for more than a few minutes. I know different exchanges can have different rules, but the SEC regulations require that those rules be implemented in such a way as to support the SEC requirements.

If you want the specific regs:
https://www.sec.gov/rules/final/34-51808.pdf
Quotes are from the summary section, it gets more detailed further in:
"The Order Protection Rule (Rule 611 under Regulation NMS) establishes intermarket protection against trade-throughs for all NMS stocks. A trade-through occurs when one trading center executes an order at a price that is inferior to the price of a protected quotation, often representing an investor limit order,displayed by another trading center."

"Moreover, a trading center is required to regularly surveil to ascertain the effectiveness of its policies and procedures and to take prompt action to remedy deficiencies."

"Finally, Rule 610 requires SROs to establish, maintain, and enforce written rules that, among other things, prohibit their members from engaging in a pattern or practice of displaying quotations that lock or cross the protected quotations of other trading centers."

do those rules apply for options or just stocks

 

[thecoder]

Regarding SEC's inglorious role in some such fraud/scam cases, see also these interesting informations:
https://en.wikipedia.org/wiki/Harry_Markopolos
"
From 1999 to 2008, Markopolos uncovered evidence that suggested that Bernie Madoff's wealth management business was a huge Ponzi scheme. In 2000, 2001, and 2005, Markopolos alerted the U.S. Securities and Exchange Commission (SEC) of his views, supplying supporting documents, but each time the SEC ignored him or gave his evidence only a cursory investigation.[1] Madoff was finally revealed to be a fraud in December 2008, when his sons contacted the Federal Bureau of Investigation. After admitting to operating the largest private Ponzi scheme in history, Madoff was sentenced in 2009 to 150 years in prison.[2][3]

In 2010, Markopolos' book on uncovering the Madoff fraud, No One Would Listen: A True Financial Thriller, was published.[4][5] Markopolos has criticized the SEC for failing to discover the Madoff fraud despite repeated tips, and for failing to investigate properly the larger companies it supervised.[6]
"
See also:
https://www.elitetrader.com/et/thre...t-instance-else-to-trust.363181/#post-5497942

 

[engineering]

do those rules apply for options or just stocks

The situation with options is a bit confusing. Check around page 288 and 497. It seems that some but not all rules apply. It sound like they are allowed 30 seconds to update the bid information from the time they receive it.

"(3) Thirty second response. Each responsible broker or dealer, within thirty seconds of receiving an order to buy or sell a listed option in an amount greater than the quotation size established by a national securities exchange’s or national securities association’s rules pursuant to paragraph (c)(1) of this section, or its published quotation size must: (i) Execute the entire order; or (ii)(A) Execute that portion of the order equal to at least: (1) The quotation size established by a national securities exchange’s or national securities association’s rules, pursuant to paragraph (c)(1) of this section, to the extent that such 498 exchange or association does not collect and make available to vendors quotation size and aggregate quotation size under paragraph (a) of this section; or (2) Its published quotation size; and (B) Revise its bid or offer."