Trading outside bid/ask - how possible?

qll · Jun 9, 2006

One of my major holdings are in AMEX, light volume. Here are some very weired things happening.
1 the specialist is always stepping in front of me.
2 the last trade price is outside bid/ask.
3 they don't fill my order, unless I cancel the order.

case 1
ask at 6.23 for 1000 shares, that is my order
bid at 6.2 for 500 shares from another account mainly to transfer shares
then i placed a bid limit order for 500 shares at 6.24. all filled at 6.23, but not filled my 1000 share order. well it is possbile that there is hidden order.

case 2
ask at 6.23 for 1000 shares, not my order
no trade for 3 hours.
then, i put an bid order of 1000 at 6.24. it shows the last trade is 6.23 of 1000 shares, and the ask order is gone. but my order is not filled, so the specialist/whoever step in front of me right after i placed my order. this case happens 30% to my trades.

case 3
ask at 6.23 for 1000 shares, not my order
then i place a trade for 2000 shares to buy at 6.24, then level 2 shows the 1000 shares are gone, and last trade is at 6.23. none of my shares are filled. i waited 20 minutes, then canceled my order. now it shows partial fill. so the specialist is steal my shares, then found he has no where to dump, then give them back to me.

case 4
ask at 6.23 for 1000 shares
bid at 6.20 for 1000 shares.
suddenly, a trade came in for 100 shares traded at 6.24, then 5 minutes later a trade case in for 100 shares traded at 6.17.
so trades are outside the bid/ask - how possible? isn't auto routing to pick the best price? it is not active traded stock, so there is no timing problem.

are those trades/specialists actions legal?

jimrockford · Jun 10, 2006

No, they aren't legal.

You have learned a great deal. You have yet to learn that you should stop throwing away your time and money. Stop trying to trade with AMEX.

WmWaster · Jun 11, 2006

Interesting report.
As I have never traded AMEX, I don't realise there're such occurrences in this market. Sounds a bit unfair to trade in this market.

DynamicReplic8r · Jun 11, 2006

Quote from qll:

case 1
ask at 6.23 for 1000 shares, that is my order
bid at 6.2 for 500 shares from another account mainly to transfer shares
then i placed a bid limit order for 500 shares at 6.24. all filled at 6.23, but not filled my 1000 share order. well it is possbile that there is hidden order.

...

are those trades/specialists actions legal? [/B]

No, but neither are your trades in 'case 1.' Trading with yourself is illegal.

If you want to transfer shares, call up your broker and have them transferred. Doing it "where it can be seen" is market manipulation.

qll · Jun 11, 2006

Quote from DynamicReplic8r:

No, but neither are your trades in 'case 1.' Trading with yourself is illegal.

If you want to transfer shares, call up your broker and have them transferred. Doing it "where it can be seen" is market manipulation.

didn't know that is illegal. i am a good investor, no near near a good trade, not passed exam yet, although i manage a large account already. i really thought it is more like day trading, which is legal --- basically i buy and sell the same day --- isn't that the same as day trading?

transfering is not allowed, because the two accounts have different names. i buy little by little from the account with the lowest commission, then trade once to my client's account which will hold the position for very long time.

i thank you again. is it possible you can point some reference - which states that activity is not allowed?

qll · Jun 11, 2006

Quote from jimrockford:

No, they aren't legal.

You have learned a great deal. You have yet to learn that you should stop throwing away your time and money. Stop trying to trade with AMEX.

what i have found that the best value stocks are in AMEX.
if those trades by specialists are not legal, can i report to SEC or AMEX to stop them?

DynamicReplic8r · Jun 11, 2006

Below are some examples of market manipulation. I think trading with yourself falls under the "Wash sale" category.

Market manipulation is a deliberate attempt to interfere with the free and fair operation of the market. Market manipulation examples include:

Price manipulation
Placing buy or sell orders (or both) into the trading system in order to change or maintain the price of a stock. The motives for attempting to do this vary: to increase the value of a position in the market for finance or accounting purposes; to be able to issue new shares at a higher price; or to cause such a price rise that other investors are attracted to the stock, creating demand that the manipulator can sell into (called "Pump and dump").

Marking the close or ramping
Making a purchase or sale of a security near the close of the day's trading, with the objective of affecting published prices, particularly the reported closing price. This might be done to avoid margin calls (when the trader's position is not self-financed), to support a flagging price or to affect the valuation of a portfolio (called "window dressing"). A common indicator is trading in small parcels of the security just before the market closes.

Wash trades and pre-arranged trading
A wash trade is a trade in which there is no change in the beneficial ownership of the securities - the buyer is, in reality, also the seller. A pre-arranged trade involves two parties trading on the basis that the transaction will be reversed later, or with an arrangement that removes the risk of ownership from the buyer. "Pooling or churning" can involve wash sales or pre-arranged trades executed in order to give an impression of active trading, and therefore investor interest in the stock.

False or misleading information
Companies can be tempted to re-release information or present information in an over-optimistic manner, in order to generate interest in the companyâs securities or help a flagging market. In some cases this includes unrealistic, unsubstantiated or incorrect data, projections or evaluations. When the perpetrators use the demand generated by the false information they have spread to sell their own shares, the operation is known as "hype and dump".

Capping and pegging
This involves activity on both the stock market and the derivatives market. A trader writes an option, which obliges the trader to sell to (in the case of a call option) or buy from (in the case of a put option) the option holder a specified number of shares at a specified price. The trader then trades in the shares covered by the option in order to affect the share price in a direction that will make the option unprofitable to exercise.

Mini-manipulation
This is similar to "capping and pegging", and refers to short term manipulation of the price of a security in order to profit from options.

Warehousing
Sometimes securities are "warehoused" or "parked" in the name of one person or company with an arrangement to sell to, or vote at the direction of, another person or company. This may breach the Corporations Act or ASX Listing Rules.

DynamicReplic8r · Jun 11, 2006

Quote from qll:

i really thought it is more like day trading, which is legal --- basically i buy and sell the same day --- isn't that the same as day trading?

The issue is not the timeframe, it's the fact that the you are on both sides of the trade. That makes it look like there is more activity than there really is.

qll · Jun 12, 2006

Quote from DynamicReplic8r:

The issue is not the timeframe, it's the fact that the you are on both sides of the trade. That makes it look like there is more activity than there really is.

because i am selling from one client's account and buying from another client's account, the ownership changed. i hope this does not fall into "Warehousing"

another thing is that what you quoted are only from .au and .nz domains. are those USA regulations too?

http://www.google.ca/search?hl=en&q="Marking+the+close+or+ramping"&meta=

DynamicReplic8r · Jun 12, 2006

Quote from qll:

because i am selling from one client's account and buying from another client's account, the ownership changed. i hope this does not fall into "Warehousing"

another thing is that what you quoted are only from .au and .nz domains. are those USA regulations too?

http://www.google.ca/search?hl=en&q="Marking+the+close+or+ramping"&meta=

I think you're probably alright then.

Here's an example of warehousing (which I'm not sure is illegal in all cases): A trader is allowed to take on twice as much risk intraday than he is allowed to take home. In otherwords, the overnight VaR is bigger than the intraday VaR. Therefore, the trader will warehouse a significant portion of his position with another house. In affect he sells some of his position to another house and agrees to buy it back in the after hours. This way, it looks like he's not carrying much risk overnight.