NYSE stop order handling - how is it done?

[cashonly]

When I put in a stop order on the NYSE, how is it handled in relation to a market order?

Let's say the stock is at 51 and I put in a sell stop at 50.

When the stock prints 50, I get my sell at the market. But how does that compare if I waited for the stock to print 50 then put in a market sell order?

What does the specialist do?
1. Print 50, then process all valid stop orders in his book at that point, then process market orders that come in?
2. Print 50, then if he has market orders, handle them (which would include my market order coming in less than a second after I got the print), then catch his breath and handle the stop orders sitting on his book?
3. Execute a trade at 50, process all valid stop orders in his book at that point, then print 50? (at which point I submit my market order).

The real question I'm trying to figure out is it better to have a stop order sitting in place or is it better to submit a market order the instant (and I mean instant if you can do it with a computer) the print comes across the ticker?

Anyone know the detailed mechanics of how this is done?
What is supposed to be done?
What is actually done?

 

[freehouse]

Based on my experiences as a listed trader for a NYSE firm, once the stock trades at $50, your stop order becomes a market order. Thus, it will be treated with the same parity as all other market orders. In other words, you should get the same executed price along with any other market orders that the specialist has.

If you have a small position (depends on the stock and the liquidity), then placing a stop order probably would be OK. The problem becomes when you have a big position (depending on the stock and the liquidity). Then the stop order will allow the specialist "pick you off". All things equal, if you are going to be watching your stock all day long, you might as well NOT place the stop order because by placing the stop order, you are giving the specialist additional information that will only help him (i.e., the knowledge of your stop may help him "pick you off").

 

[dufferdon]

Can I ask for futher clarification please. My broker does not place the stop order on the specialists book. Instead it is on the broker's computer. When triggered a market order is sent to the exchange.

Are you saying that my market order will be aggregated with any other stop order already on the specialist's book that is triggered at the same price point and that there is no precedence in filling them based on the time at which they were received, so they will be treated exactly the same way? Presumably, my market order triggered from my broker's computer will be at the end of the queue, if the orders are treated as a queue rather than aggregated.

 

[cashonly]

Originally posted by dufferdon
Can I ask for futher clarification please. My broker does not place the stop order on the specialists book. Instead it is on the broker's computer. When triggered a market order is sent to the exchange.

Are you saying that my market order will be aggregated with any other stop order already on the specialist's book that is triggered at the same price point and that there is no precedence in filling them based on the time at which they were received, so they will be treated exactly the same way? Presumably, my market order triggered from my broker's computer will be at the end of the queue, if the orders are treated as a queue rather than aggregated.

That's what I'm trying to figure out. Market orders are supposed to be in time received order and I want to know if a stop order that is turned into a market order could be executed after a market order that comes in within a second of the stop order.

You see, if it works in strict time order, then I would think the stop order gets executed and then the subsequent market orders get executed. That is, as long as the specialist doesn't try to handle the regular market orders first.

This is key because it could cost you a tick or two. Let's say that your price of 50 prints and there is 1000 shares bid a 50 and 1000 shares bid at 49.90 (which we can't see). I have a stop order sitting with the specialist for 1000 shares at 50. When th print comes across, your 1000 share market sell order is submitted. With strict time order, I sell my 1000 shares for $50 and you sell your 1000 shares for $49.90.

What I'm asking is this. The stock prints at $50. Then your market order arrives 1 second later. Does the specialist say "let me handle this market order, then I'll handle the stop"? If so, in this case you sell your 1000 for $50 and I sell mine for $49.90.

In regards to the other comment on this thread, I think the "stop running" (picking off stops) argument is more folklore than reality, at least on liquid stocks.

 

[rtharp]

Stops are placed on the NYSE Specialist book--unless your broker has them put on his server. I'd call to find out but 99% of stops go to the NYSE and not the broker. This is the key question I'd have for you. Where are your stops placed for the NYSE?

Stops will receive priority over a market order. If you bought at 51 and had a stop on the NYSE book placed at 50 once it trades 50 you are guaranteed the next print (as long as other stops weren't in front of yours). A market order can be held for 2 minutes and won't be guaranteed the next print. So to answer your question a market order wouldn't get priority. This is only if the stop was in the specialist's book.


Stops that are extremely close in the specialist book are gunned for. He will lean on those when he can to get some liquidity/inventory. If you place extremely tight stops use a broker's server. If they are far away use the specialist. His are guaranteed. It is possible though that he can make a mistake and forget to execute your stop at the correct time though--he is human. If you think you were cheated call your clearing firm and ask them to call the floor. The floor tells you to F- Off orders were in front of yours. Call the clearing firm again and have them get a manager involved. If orders were in front that's fine and fair but that also means the specialist couldn't take/unload inventory with those prints. They will check to see if he did and if a mistake was made give you that print.

NASDAQ doesn't allow stops but brokers have gotten around this rule by putting them on their servers.

 

[cashonly]

Originally posted by rtharp
Stops will receive priority over a market order. If you bought at 51 and had a stop on the NYSE book placed at 50 once it trades 50 you are guaranteed the next print (as long as other stops weren't in front of yours). A market order can be held for 2 minutes and won't be guaranteed the next print. So to answer your question a market order wouldn't get priority. This is only if the stop was in the specialist's book.

Thanks rtharp, this answers my question. I thought that was the way it was. I just wanted to check and see if anyone had experienced any "specialist games"

It is possible though that he can make a mistake and forget to execute your stop at the correct time though--he is human. If you think you were cheated call your clearing firm and ask them to call the floor. The floor tells you to F- Off orders were in front of yours. Call the clearing firm again and have them get a manager involved. If orders were in front that's fine and fair but that also means the specialist couldn't take/unload inventory with those prints. They will check to see if he did and if a mistake was made give you that print.

I have had situations where my stop order was "forgotten". One time I noticed it near the end of the day and called them on it. I got my fill and made a nice profit on it. One time I noticed it about an hour later and by that time, it was going against me. I didn't call anyone and never got the fill... saved myself from a loss.