Order busting

Quote from mskl:

I would disagree with the 99% figure. However, in most cases I would say that these unfair "busts" are not due to fraud but simply ignorance. Here are a couple of busts that I have had in the last year:
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You are saying ignorance on the part of the persons who made the decision at the ECN? I can buy that. I would claim that in many cases there is fraud by the counterparty of the busted trade. They knew there was news and their original orders were not erroneous at all. They try to use the time machine to get back their money.

It is interesting you have these stories describing how the persons at the ECNs arrive at a busting decision. My broker tells me nothing except for bust/no bust. No details at all.


You guys seem to know a lot about the "busting procedure" but I'll bet many of you don't what happens in the following situation:

1) trader A from broker Z buys a stock from trader B on ARCA/INET who also has the same broker Z. Trader A requests a bust. What will the broker do?
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Just a guess. The broker never deals with the ECN directly. Tries to resolve the issue in house by nullifying both sides or agreeing on a fair price between the two parties.
 
Quote from sprstpd:

or agreeing on a fair price between the two parties.
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this should be implemented by ECN's too. once i got stock somewhere like 5% away from price @ that moment. did found out about this fill after i back home and market was closed already. don't know what to do, but -it seems like some free lunch. have no idea about busts,etc. so i sold it on next day later around 11-11:30 am,then-by the end of same day order get busted and they put me in opposite position and on top of it-stock did move in opposite direction and i have loss! no free lunch for me. @ least-not in this life))))))) even after i point on ECN policy,which says very clear that any erroneous trade will be ruled by next day open max. that maximum period of time go bust. if you press on wrong button-all you have is 20 minutes to report it. this is first thing that your broker will said to you-more than 20 min-you late, go away. i bet-in soem cases they not even going to make a call to ecn. but if you on right side -two days and ruling against their own policy-isn't a problem.
kinda not really fair for small guy. fair price between two parties may be right in some situations.
 
Bob: It's more likely that the ECN made the ruling quickly, and your broker just didn't get around to telling you, most likely because they were not used to dealing with busts. For any active trading firm, they are a common occurrence, and are usually dealt with within a couple hours.

There does actually appear to be a feedback process available to plead your case before the decision is made, as it should be. When someone requests a bust on a trade with me, my firm tells me that the trade is being sent for ruling pretty quickly, and then comes back later with the decision. Presumably, I could give them input at this initial contact to defend myself against the bust if I wanted to, though it hasn't come up. They've been mostly black or white decisions in recent times.

Mike: Yes. :)
 
Quote from sprstpd:

You are saying ignorance on the part of the persons who made the decision at the ECN? I can buy that. I would claim that in many cases there is fraud by the counterparty of the busted trade. They knew there was news and their original orders were not erroneous at all. They try to use the time machine to get back their money.

It is interesting you have these stories describing how the persons at the ECNs arrive at a busting decision. My broker tells me nothing except for bust/no bust. No details at all.




Just a guess. The broker never deals with the ECN directly. Tries to resolve the issue in house by nullifying both sides or agreeing on a fair price between the two parties.
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I only find out the "story" when the bust doesn't make sense. In the first case I went to ARCA directly - in the second case my broker supplied the information.

I know what you are saying re "fraud by the couterparty" but I kind of think of it as arbing the ECN's rules - I've always felt that they bust too many marginal trades. I always ask the ECN's if it is so obvious that the trade is an error then why do you allow traders to enter such prices? (black and white rule)

I think the ECN's would find it worthwhile to charge the busting party a hefty fee like some of the EURO exchanges (say $500) to "attempt" to bust a trade.


As for my question, you are right - when the trade in question is in-house then the ECN's don't want anything to do with it. It is up to the broker to bust or adjust as they seem right based on the rules of the Exchange - and believe me this is NOT something some brokers want to do.
 
This is a true story that happened to me while trading LU a few years back.
Back in the middle part of the telecom meltdown, LU was trading at 1.15 one morning ( the aspiring NT was close to .80 cents I believe), the morning started off pretty non chalantly. LU opened at 1.15 and within minutes it was trading at 1.10 when some yahoo on ARCA decided he would sell a little over a million shares at 1.00. Now this order only sat on the ARCA exchange so this bozo took everything off the bid from 1.10-1.01 and the rest sat a 1.00 on the offer while NYSE and all the other ECN's were bidding 1.10. So naturally I thought it was a stuck order (realtick is always having stuck orders) So i said to myself "oh what the hell, let me see if I can hit it", so i sent 25k off to arca at 1.00 and bamm! shares are bought. So I said "SWEET!" i tagged him for another 50k this time (by this time the order was live for about a total of 15 seconds) I took the 75k I had and sold ISI at market (which executed at 1.10, While that order was selling I was buying more (unfortunately, others were cathcing on and the 1.2 million that was previously for sale had been widdled down to about 400k. I kept buying and selling as much as my buying power would let me. Soon after (about 25 seconds had passed) the whole thing was over. Out of all the shares that had traded I managed to grab about 450k of them and sold between 1.10 and 1.08 on the bid. When it was all said and done it was my second best day ever in profit. Soon after the dreaded phone call from my broker! I was not surprised, but the expanation I had gotten was someone fat fingered something and it was a screw up, they wanted to bust my trades. I told them no way, it fell within the range of the applicable 10%, meanwhile I knew the bozo had alterior motives. My guess it was a hedge fund who was obviously short who thought he could get all the 1.00 buck stops to trigger and if it didnt work he would ask for a freebie from ARCA. I was fighting him all the way. Anyway, after several phone calls back and forth to ARCA he offered a settlement to me in the amount of all the buys at 1.05. I was amazed considering LU was now trading at 1.02 in the live market! I told him no way
I was sticking to my guns, 5 minutes later LU was at .95 (after all the stops triggered) and they called to tell me that he was giving up on busting the trades. I told them I would now like to bust the trades at 1.00 which would of had me short a small truckload from 1.10-1.08 LOL naturally he said no. Well the whole thing went away, the trades stood and a few days later LU was in the .70's. So the hedgie got what he wanted (which was a cheaper cover price) I got what I wanted (which was for my trades to stand) and everyone was happy. You just have to stand up for yourself, and sometimes you get lucky! :)
 
I used to liquidity trade a stock on ARCA sometimes on the AMEX that had a .03 cent stock price. Some days this stock would move up a penny down a penny and you could do millions in liquidity on it and get paid. The stock was RCO. Well one day at 5:30pm they announced a reverse stock split that was effective the next day in the amount of a 60-1 (this would of put the stock at 1.80 the next day) So the next morning I was up early waiting on some bozo to sell on the cheap (I have had experiences before where people did not know that a reverse happened and they think they were getting a steal on the sell price) So the next day at 8:00 AM when all the ameritraders and etraders of the world can start trading I was ready, I had orders in already on ARCA prior to 8:00 at .10 .11 .12 .13 .14 .15, well wouldnt you know it someone at 8:02 decided to sell a ton at .10, they hit all my orders and the bulk of my 50k buy at .10, I was sitting on 100k before I knew it with a stock average of about .12 cents. So over the next 15 minutes the stock was trading at .30 cents! I could not believe it, it should of been atleast 1.25 with the reverse factored in! Well I bought more and soon I had about 175k at .25 cent average. I did not sell any just bought that morning, I was actually not wanting the headache of being short when they called to bust all the buys because obviously someone, or persons were not informed of the reverse, so i was thinking they would naturally break all these trades. Needless to say, the stock was halted until 1:30 pm that afternoon. I NEVER GOT A CALL TO BUST THE TRADES! I was long 175k from .25 and the stock had opened at .85 on the amex. I did not sell a share until the next day, just to make sure that I was in the clear. I checked, double checked, and triple checked with my broker to make sure I was good to go on the selling. I started unloading the next day at 1.00 1.20 1.30 and over a few days all the way up to 2.00 The stock actually went to 4 over the next few days, but I was out at 2.00 I banked so large from others mistakes on this one, it actually could of bought me another house. What ended up happening was ameritrade did not account for the reverese, so the uninformed woke up that morning with 500k of shares at what they thought was .03 cents and they saw bids at .30 and thought their boat had come in. Ameritrade never adjusted their shares. This happened to 100's of accounts that day. I dont know what every happned to those people, I imagine Ameritrade probably tried to stick them with the bill on that, but I did hear of a few suing them over the whole fiasco. I know Ameritrade tried to have the trades busted but ARCA would not, as a matter of fact my contacts at ARCA that day told me they all intentions of letting the stock trades stand. So in the end ameritrade froze the 100's of accounts that had sold the stock(ending up in a massive short position) for their customers. Since most of their customers trading this stock did not have much money in their accounts, their account were taken to 0 and frozen, and ameritrade had millions to cover in the open market that they were short. That is what made the stock go nuts over that 4 day period (that and daytraders jumping on) True story, i know of others that banked on this one as well, not as much as me but still most made 4 or 5 dimes on this one. Look at the chart and you will see what I am talking about. The symbol is still RCO :)
 
Quote from mksummny:

Soon after the dreaded phone call from my broker! I was not surprised, but the expanation I had gotten was someone fat fingered something and it was a screw up, they wanted to bust my trades. I told them no way, it fell within the range of the applicable 10%, meanwhile I knew the bozo had alterior motives.
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Man, my broker rarely ever asks me for input at all, even if I have legitimate reasons why a trade should stand. I usually just get a terse "busted!" phone call or e-mail and that's that. Then it's off to the punching bag.
 
Nothing like mksummny's score, but I did buy some $20 stock for 1 cent a share. Not a lot, but enough to pay for the rent for a few months.

No bust.

(They did bust one the other day like that, but the one mentioned did stand)
 
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