That's a first... IB notified me that one of my trades is being busted.

[Hari Seldon]

I had an options trade busted on spy earlier in the week. I was filled at a crazy price on a short put. Letter said I got filled during the trading halt.

I was pissed at first only because I didn't get the notice until later in the day. But understood and just figured that it happens.

 

[Ryan81]

I had an options trade busted on spy earlier in the week. I was filled at a crazy price on a short put. Letter said I got filled during the trading halt.

I was pissed at first only because I didn't get the notice until later in the day. But understood and just figured that it happens.

Yeah, I understand too. I also understand that it is the exchange that busts the trade, not IB. I only wish IB was better about informing the customer (e.g. somehow updating the trading platform with the revised position, sooner.... Or, just call out *specifically* which trades are subject to being busted, instead of a very large and ambiguous list.)

 

[tonyf]

A limit order of mine was lifted yesterday at closing 170% away from the last print.
Subsequently busted according to IB.
Reading online, it seems to me that trades >15% away from last print can be busted by other side (usually market makers) at their discretion, since exchanges act like SROs.

 

[d0rian]

Had it happen a few times. What's incredibly aggravating is:

• There's no transaction for the bust/reversal shown in the Trade Log window. Sometimes there's a flash popup window alerting you of the bust, but one time I didn't get one, and was only able to piece together what happened when I saw an open short position and messaged them.
• They can still bust/reverse the transaction even after you've closed it yourself, leaving you with exposure. I sometimes trade the open, then close it within 5 minutes to book a profit. If the original opening transaction gets busted/reversed, what you thought was the closing transaction still stands, leaving you with open exposure.
• They don't explain anything beyond 'outside market price range blah blah blah', even (in once case) when the range was pretty tight, and not out of line with yesterday's close.

Not sure retail traders have any leverage here. IB told me in one case that it's out of their hands and all done programatically by the exchanges, but wouldn't be surprised if MM's or big institutional traders on the other side of these have some back-channel to unwind trades they don't like in a volatile market.

 

[Sig]

Had it happen a few times. What's incredibly aggravating is:

• There's no transaction for the bust/reversal shown in the Trade Log window. Sometimes there's a flash popup window alerting you of the bust, but one time I didn't get one, and was only able to piece together what happened when I saw an open short position and messaged them.
• They can still bust/reverse the transaction even after you've closed it yourself, leaving you with exposure. I sometimes trade the open, then close it within 5 minutes to book a profit. If the original opening transaction gets busted/reversed, what you thought was the closing transaction still stands, leaving you with open exposure.
• They don't explain anything beyond 'outside market price range blah blah blah', even (in once case) when the range was pretty tight, and not out of line with yesterday's close.

Not sure retail traders have any leverage here. IB told me in one case that it's out of their hands and all done programatically by the exchanges, but wouldn't be surprised if MM's or big institutional traders on the other side of these have some back-channel to unwind trades they don't like in a volatile market.

Pretty sure you can ask for a bust as well, the rules are pretty clearly laid out and apply to all market participants. Big traders who are using a tech layer will have functionality built to minimize their exposure to busted trades, but there's no secret cabal going on.

 

[def]

Had it happen a few times. What's incredibly aggravating is:

• There's no transaction for the bust/reversal shown in the Trade Log window. Sometimes there's a flash popup window alerting you of the bust, but one time I didn't get one, and was only able to piece together what happened when I saw an open short position and messaged them.
• They can still bust/reverse the transaction even after you've closed it yourself, leaving you with exposure. I sometimes trade the open, then close it within 5 minutes to book a profit. If the original opening transaction gets busted/reversed, what you thought was the closing transaction still stands, leaving you with open exposure.
• They don't explain anything beyond 'outside market price range blah blah blah', even (in once case) when the range was pretty tight, and not out of line with yesterday's close.

Not sure retail traders have any leverage here. IB told me in one case that it's out of their hands and all done programatically by the exchanges, but wouldn't be surprised if MM's or big institutional traders on the other side of these have some back-channel to unwind trades they don't like in a volatile market.

The process of busting trades is not as simple and clear cut as you may think. There are exchanges that may have clear rules there are others that don't. I don't have time to go through all the scenarios I've seen over the many years I've been in the business as both a market maker (where almost always we were the ones having our trades busted) to the other side where clients have trades busted on both the giving and receiving end.

if it were so easy to control, by now you'd think exchanges would have built in controls to block pricing. It is not. Often the process is someone needs to complain (and they need to do that within a certain time frame), exchange officials need to review and make a decision and then the question for some of these exchanges is to either rebook to a fair price or bust. Sometimes exchanges send out a notice that a trade is in question, other times they don't. If you get that notice as broker, you now need to figure out who made the trade and try to contact the client. As a market maker, you need to quickly decide the probability of a bust or not and take action. Often the process on the exchange sides takes time and during that time both sides can have clue to hedge, close, cut losses, take winners, etc. Once a ruling is made - they inform brokers and often do so manually. Now the broker needs to contact the client. They also need to reverse the trade. This also takes time and also should require a process of controls on how to perform this action on the brokerage side.

Seems simple enough but that's already a fair amount of time and effort. Now, add to the picture market conditions. What if it is a fast market? What if there are numerous clients involved. What if there were numerous symbols involved? What if the exchange has no idea what they will bust because some participant or HFT mucked up and took out an entire market to the tune of several thousand trades (I've seen this more than once). In short, it is not that simple. All you see is your one trade but not the entire picture. I could go on and give a lecture on this but I just hope you get the point.

My best advice - if a trade seems to good to be true - assume it will be busted and as always, know the rules of the exchange and markets in which you trade. Be prepared, a little homework never hurts.

 

[tonyf]

The process of busting trades is not as simple and clear cut as you may think. There are exchanges that may have clear rules there are others that don't. I don't have time to go through all the scenarios I've seen over the many years I've been in the business as both a market maker (where almost always we were the ones having our trades busted) to the other side where clients have trades busted on both the giving and receiving end.

if it were so easy to control, by now you'd think exchanges would have built in controls to block pricing. It is not. Often the process is someone needs to complain (and they need to do that within a certain time frame), exchange officials need to review and make a decision and then the question for some of these exchanges is to either rebook to a fair price or bust. Sometimes exchanges send out a notice that a trade is in question, other times they don't. If you get that notice as broker, you now need to figure out who made the trade and try to contact the client. As a market maker, you need to quickly decide the probability of a bust or not and take action. Often the process on the exchange sides takes time and during that time both sides can have clue to hedge, close, cut losses, take winners, etc. Once a ruling is made - they inform brokers and often do so manually. Now the broker needs to contact the client. They also need to reverse the trade. This also takes time and also should require a process of controls on how to perform this action on the brokerage side.

Seems simple enough but that's already a fair amount of time and effort. Now, add to the picture market conditions. What if it is a fast market? What if there are numerous clients involved. What if there were numerous symbols involved? What if the exchange has no idea what they will bust because some participant or HFT mucked up and took out an entire market to the tune of several thousand trades (I've seen this more than once). In short, it is not that simple. All you see is your one trade but not the entire picture. I could go on and give a lecture on this but I just hope you get the point.

My best advice - if a trade seems to good to be true - assume it will be busted and as always, know the rules of the exchange and markets in which you trade. Be prepared, a little homework never hurts.

Thanks for that as always.
I take it that all other brokers bust as well then as easily as IB.
What about the case where both parties to a trade are IB clients? Does IB adjudicate? If so, what is the logic or rational?

 

[def]

Thanks for that as always.
I take it that all other brokers bust as well then as easily as IB.
What about the case where both parties to a trade are IB clients? Does IB adjudicate? If so, what is the logic or rational?

We normally wouldn't have a choice as the options trade would be on an exchange and the exchange would bust. These days most exchanges have rules they follow and that is that.

If I had to make a choice, my rational would include- is it obvious, is it outside of the parameters or guidelines of the exchange, did the client who made the error call to see if the trade could be busted, etc. Each situation is different and thus I can't drill down to any specific rational but in most cases (assuming only 1 order) the decision would usually be obvious because if it wasn't it probably wouldn't qualify to be busted.

 

[tonyf]

We normally wouldn't have a choice as the options trade would be on an exchange and the exchange would bust. These days most exchanges have rules they follow and that is that.

If I had to make a choice, my rational would include- is it obvious, is it outside of the parameters or guidelines of the exchange, did the client who made the error call to see if the trade could be busted, etc. Each situation is different and thus I can't drill down to any specific rational but in most cases (assuming only 1 order) the decision would usually be obvious because if it wasn't it probably wouldn't qualify to be busted.

By that same logic, why can't one appeal forced liquidations done by the IB Algorithm in case where obviously the algo has liquidated illiquid instruments very far from the last print?
Plenty of rents on online forums and a couple of court cases currently outstanding regarding this matter, where IB acts in a cagey way to "protect its IP".