News on Regulatory action against Tradestation Securities

R

ronblack

http://www.nfa.futures.org/basicnet/Case.aspx?entityid=0307871&case=2005-INV-26&contrib=CBOT

"Regulation 9B.14, in that TradeStation knowingly entered bids and offers into the e-cbot system other than in good faith for the purpose of executing bona fide transactions."

Can someone who is more familiar with the regulatory aspects of this business explain what this means in practical terms?

Does it mean that Tradestation Securities was front running their customer orders or manipulating prices? It is strange but why they would do something like that from their own system when they know it is easy to be spotted? Furthermore, how can the authorities determine something is not done in "good faith"?

Ron
 
Don't know exactly what was done but I can assume someone was posting size bids or any bids for that matter then canceling when it was clear they would get hit. Firms of all size do it all the time to try to make a stock look like it has real buyers and support. It has to be a pretty blatant violation to get sanctioned like this however.

After initiating a position, many traders will place a size bid that will chase the offer up to drive in buyers. Do they care if they get hit for a few hundred, no. Do they really want more stock up there, no. And will usually cancel at some point.

It is a silly game of trying to paint a stronger picture. Just watch for multiple orders to cancel at the same time.
 
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