A friend of mine who is an older guy in his late 70's still uses a full serivce broker to purchase fund shares mainly. The other day he decided to go long SPY and called his broker to place the order, business as usual that is. To make a long story short, when my friend got his trade report back at the end of the day he noticed that it was executed almost 6 minutes after he placed the order. He called the broker to ask about the delay and he got an email back saying something like this: "Took 6 mins to build the basket, pass to trader, and get this in the market." I'm not familiar with ETF's. I trade futures mainly and forex through IB. All electronic and instant executions for most part. Can anyone explain what the above statement by the broker means? Do they have to build a basket when they trade the ETF? John Edit: I forgot to add that the difference in price from the time my friend placed the order to the time it was filled was $500 against him.
You're right- The broker's response makes no sense at all, as SPY is <b>already</b> a ready-built basket of securities. Any professional trader can buy it in milliseconds, just like any other stock. In fact, even non direct-access retail brokers like Schwab will fill you in a couple seconds or less. The broker is probably either ignorant or lying. Anyone see a third possibility here? Because I don't.
Thanks. The broker can't be ignorant because he is the head of a prestigious private banking trading room. I added the following note to my post: "I forgot to add that the difference in price from the time my friend placed the order to the time it was filled was $500 against him." John
Oh, I already assumed that part! Here's what I think might have happened: Customer calls shady broker at 10:00 AM with an order to buy XYZ at market. Shady broker easily fills the order immediately at $100, and waits to see what the market does in the next few minutes. If by 10:06, XYZ is trading around the same price ($100) or lower, the original prompt fill is assigned to the customer, and that's the end of the story. If by 10:06, XYZ is trading all the way up at $102, Shady broker keeps the original prompt fill for himself (or his proxy, to make the scam's paper trail harder to detect) and sells it to the customer six minutes late at $102, pocketing the $2 difference as a risk-free arb. This is illegal, of course, and the broker has to have very little respect for his customer/victim's mental capacities to try and pull a douchebag stunt of that kind.
Definitely worth looking into. I've worked with a lot of people who would see this fraud as a perk of their job.
<i>""Took 6 mins to build the basket, pass to trader, and get this in the market."</i> That's like saying, "sun was late coming up today because we still rotate the moon by hand in these parts"</i> Qs and SPY are the most ultra-liquid shares instruments that exist. The broker owes your friend a timely fill within seconds of the initial contact... while on the phone together. Why wasn't the order fill confirmed during their conversation?
"Took 6 mins to build the basket, pass to trader, and get this in the market." The broker probably had another call waiting while he was on the phone with your friend. After the broker heard the order he probably picked up the other line instead of immediately entering the trade. While this is going on SPY moved higher and your friends order was only entered after the broker finished his conversation with the person on hold. The broker should have enter the trade when the order was given. Ask the broker for a time & sales report as to when the trade was entered and excuted.
Agree with Rearden Metal : Back-Kitchen of a full service Broker. In the mail, he agree that the trade was late, and for excuse give an evidence of lying ( Built "the basket"). So, with this ammunition, ask the broker for a fix, or he fill a complaint (they don't like it) and move his account . If the broker agree: nice. If not, fill the complaint. In all case : change of broker. It's very easy for them to scam ignorant client. With electronic trading and webb communities as ET, the good olds days are vanish... but it remain pretty nice niches : old style clients, Bonds, money market...
Sounds like a story they use to each other? build the basket (build the crib) pass the baby to the trader and put it in the market (steal the candy).
My guess is we're missing part of the story. You dont build a book of high net worth clients and become a head of that dept by being lazy and sloppy. There are not a whole lot of brokers left who get such high comish on individual trades, i would doubt he'd do such a lousy job with the few he has left. Also he's not takin the other side of the trade so why would he want his client to do worse in the market?