Odd Lot Trading Illegal?

[rolando87]

OK so what I understand of this so far is that 5-10 years ago oddlots got preference in execution, thus you could trade 99 share lots and get instant fills/ get filled before roundlots that were waiting with a limit order entered before you. Apparently this is not the case anymore as the loophole is now closed.

What i still don't understand is whether trading using oddlots only is actually illegal or still illegal as per SEC rules. Seeing that it doesn't make a difference anymore because oddlots don't get fill priority.

I'm glad to hear its not illegal in a retail account so I have nothing to worry about in my personal account, but I would like to trade small oddlots through that prop firm. So i guess the big question is; is it still illegal for prop firms to trade oddlots?

Many thanks to the responses above.

 

[JM1987]

i can tell you right now if I was to send a 99 share order to any ECN it would get killed and tell me I cannot submit new orders under 100 shares. And if I do get filled partial on entry and I add liquidity to get out my order will be filled last.

 

[MaklodaSux]

Quote from Dustin:

Odd lots are illegal for prop firms but not retail accounts. This law was because people were taking advantage of auto execution of odd lots ahead of other orders. It was maybe 5-7 years ago.

Exactly. When I traded, you could do it but they'd keep an eye on it for abuse. Too much and you're done.

 

[pytton]

OK bumping this.

I am thinking of developing an algo that would gradually 'ease-me-into' a position. Instead of sending one order for 500 shares I want to send 50 orders for 10 shares each - over a period of 1 to 5 minutes.

I am paper trading right now and looking for a prop shop with commissions low enough to make scalping plausible.

I found these guys:

http://www.jctradinggroup.com/

on this forum.

Got in touch. A guy named Chris was really helpful and answered a lot of my questions.

I was offered 0.00075 USD per share and a 20/80 profit split - something that would completely suffice given that they do have a platform with an API and I'm guessing I could write my own algos for it.

However, when we got into the details I was told that, quote:

"you can't daytrade odd lots"

When I asked whether that ban on 'day-trading odd lots' was regulatory or simply firm's policy he said that, quote:

"regulatory. otherwise we don't care."

Chris was a really nice guy but I'm guessing he didn't have enough time to go into all the details for me.


Personally, I have found the following regarding this matter:

http://www1.nyse.com/nysenotices/nyse/information-memos/pdf?memo_id=10-35

but is says that:

"NYSE Regulation previously issued guidance concerning the use of the odd-lot system, and in particular, identified certain uses of the odd-lot system that constituted prohibited trading practices."

but reading further down it says:

"In connection with the decommissioning of the odd-lot system, the Exchange deleted those portions of Rule 411(b) that required odd-lot orders for the same customer to be consolidated into round lots. In addition, because the DMM is no longer the contra-side to most odd-lot executions, and odd-lot orders are now executed with all round-lot orders, NYSE Regulation rescinds the previously-issued guidance as it relates to the abuses specifically described above."


I also found something about odd lots on the SEC:

http://www.sec.gov/marketstructure/research/highlight-2014-01.html#.VQiFW47F8jw

And this this Goldman memo:

https://gset.gs.com/cgi-bin/upload.dll/file.pdf?z03860f0az8ce9c93b33ef479a902253dcf4596de2

which is 6 years old.

But I can't find any regulation saying that you are not allowed to day-trade odd lots.



I asked Chris at JC Trading about it and asked if he could tell me where to find the regulation he is talking about, but he did not give me a reply. Just said that, quote again:

"i appreciate your desire to understand educate yourself but i honestly don't know where that is stated. i can only tell you that no firm will be able to do that. "


Which is a bummer because I was seriously considering registering with them.





FINALLY FOR MY QUESTION:

Is it regulatory or not? If it is, then, WHERE IS THE REGULATION?

If it is not, does anyone out there know of a reputable prop house which will give me what JC Trading offered? That is 0.00075 USD per share and 20/80 profit split, with an API and no restrictions on odd lots?

 

[Sig]

Its not uncommon for people to vaguely remember an old rule and not take the time to research the fact that its changed. You're unfortunately forced with the impossible task of proving that a rule doesn't exist. I guess you have to just move on, a prop firm can always be more conservative than required even if its for the wrong reason.