Discussion in 'Order Execution' started by Vinny1, Jun 5, 2002.

  1. Say you put in a buy limit order higher than the current offer on ARCA for some Nasdaq stock. Does anyone know if ARCA will trade with ISLD hidden orders,MM's reserve orders,other ECN's reserve orders,odd lots,and orders entered with 3 decimal places(although shown on level 2 with only 2 decimal places) before it moves on to taking a higher offer price?
  2. Magna

    Magna Administrator

    It is my understanding that ARCA will first attempt to fill at the inside offer. If that happens to be an ISLD hidden order, a MM and his reserves, or another ECN's offer with it's reserves then so be it. In fact, if ISLD's hidden order or another ECN's reserve order are not at the inside then ARCA won't see them. And, of course, if the MM is not at the inside his reserves won't matter.

    After filling with as much available at the inside, if your order's not completely filled ARCA starts moving towards your limit. At that stage, and someone please correct me if I'm wrong, it will not "see" any ISLD hidden orders outside the inside, but it would start filling from MM's or other ECN's offers and reserve orders.
  3. RE: MM's reserve orders-yes ARCA would execute against MM's reserve volume IF Arca had already delivered the order to SUperSOES after exausting its other methods for finding liquidity and IF the MM with reserve size was the only MM at the inside since SS orders execute against all displayed volume first.

    RE Other ECN's reserve orders-No since the reserve volume is not really live until each amount designated to be "shown" is actually posted. THough if the reserve was held internally by another ARCA trader, perhaps it would? An interesting question!

    Odd Lots-Yes

    Orders with three decimals-Yes

    ISLD Hidden-Don't know (good question) depends on how ARCA actually sees that ISLD has volume that it can match or cross with the order it is trying to fill. If it sees this volume from the ISLD book then it seems though it would not cross with hidden volume. My guess is that it would execute against hidden volume only by accident, that is it goes against displayed volume but then ISLD matches the incoming ARCA order with a better priced hidden order (if it existed). Just a guess though.
  4. If the ISLD order is hidden then how would ARCA know to route
    the the order there (which I think was Vinny's original point)?

    Regarding ECN reserve this is an interesting point. At the time ARCA routes the order to the ECN with reserve, ARCA presumable only knows about the displayed volume. As soon as it executes against that, the ECN will refresh from reserve, but has ARCA already moved on to another pool of liquidity? Will it turn around and come back once it sees that the ECN posted some more volume?

    It would NOT execute against MM's volume-reserve or displayed-if the MM is not at the inside since ARCA will not SNET preference anymore and SuperSOES orders will only execute against the inside price level.

    Regarding ISLD hidden orders, I think it would not see them anywhere-inside or outside the NBBO but that remains a question. Same with reserve volume-remains a question.
  5. Why do we have order books, if everyone wants his orders to be hidden ? :(
  6. It's BECAUSE WE HAVE order books that people want to hide their orders.
  7. Magna

    Magna Administrator

    It has been my understanding that ISLD hidden orders are only accessible from within the Island book unless they are at the inside bid/offer, at which time they are accessible by the world....or in this case, ARCA. As to how ARCA would "see" them is a good question, maybe it's an internal ISLD process where they automatically become un-hidden when at the inside bid/offer? Hopefully someone will clarify this point.
  8. Yes agreed. My opinion on the latter point is that ARCA would not see them and would only execute against them unintentionally in a case where ISLD would match the incoming ARCA order to the hidden order because it provides price improvement. However this is merely speculation at this point.
  9. qazmax


    Even as good as ARCA is yu can still get filled outside the NBBO.
    This is becuase of simple economics.

    ARCA is a step by step router, and it tries cheapest, not best first.
    1) It first matches in house.... the cheapest
    2) Then it matches with the 4 direct links it has to ECNs... all basically free after rebates.
    3) Then it will use SuperSoes for MM
    4) Then SNET if needs to trade with an ECN that it does not have a direct link to
    5) Then it will post the order to its own book.

    So frequently you can trade on ISLD outside the NBBO.
    Yes you can pick up invisible posts on ISLD... but it will not be able to know to send it there. It will just "trip over" them on the way.

    Yes you can hammer away on a market maker reserve size via the Nasdaq SuperSoes.

    ARCA odd lots stink. They do not handle them in house. They route to a 3rd party. So even if you send 530 shares, the 30 may end up with this 3rd party. Often I get a price worse than my limit price !! (illegal of course) So I have to call to get an adjustment.

    ARCA is the premier ECN right now... and I know they need to save money to. So no blame here.

  10. dlincke


    Not sure about ARCA, but REDI has to different kinds of limit orders (LIMIT and LIMIT OR BETTER) that will yield different results in this particular situation. A LIMIT order will sweep all market participants within the limit price range concurrently while a LIMIT OR BETTER order proceeds one participant at a time towards the limit price. Thus in the first case you can easily end up with a substantial portion of your order being filled outside the NBBO if there's an ECN using reserve size at the inside (especially if it's only showing 100 shares). E.g. a limit buy order for 3000 shares priced at 50.60 in a situation as shown below with BRUT working a large block in reserve would yield a fill for 100 at 50.50 and 2900 at 50.58 with BRUT remaining at 50.50 after the order has filled.

    BRUT 50.50 (1)
    ISLD 50.58 (50)
    #10     Jun 12, 2002