De minimus Exemption for Listed Stocks

Discussion in 'Order Execution' started by RobertMcLister, Feb 24, 2004.

  1. chs245

    chs245

    ok, forgive my ignorance but i don't get the issue with the trade throughs. i can trade nyse stocks at any price via ARCA or other ECNs. I can choose today already (as an example) to hit a bid on ARCA at $1 below the bid/ask of the specialist. What will the new rule be about ?

    Thanks,

    Oliver
     


  2. Yeah. It's a bit confusing. Here's the scoop. ARCAEx is an ITS participant. So the only way (that I know of) to hit an ARCAEx bid that is $1 below the NYSE bid is if:

    1. The order is for more than the NYSE's displayed size--in which case the balance will be routed the the next best price; or,

    2. The order is for 100 shares or less--which is a loophole in ARCAEx's trade-through logic.

    ARCAEx routes all other orders strictly according to ITS rules--which means the NYSE specialist, for example, has 30 seconds to fill/decline the applicable part of your order if he/she is posting a better price.

    If the SEC mandates an exemption to the trade-through, you'll be able to route "through" the NYSE on your entire order size, up to the prescribed limit price (if they impose a limit). It would operate similar to the current 3-cent de minimus exemption in ETFs.



    ***Update***

    Since I wrote this the SEC officially announced its intention to modify the trade-through rule:

    http://money.iwon.com/jsp/nw/nwdt_r...524602-u1&feed=reu&date=20040224&cat=INDUSTRY

    http://cbs.marketwatch.com/news/new...DB38-AA62-4983-96F2-C92F8DB5A41F}&siteid=mktw
     
  3. Actually Chs245 is right. ECNs can go around and do go around the NYSE all day long for as much as they want. ARCA only routes into ITS if your order is set up to do so. (Most are by default). INET, for all Ed Nichols' BS doesn't even participate in ITS and can trade thru at will.
     

  4. Hmmmm. You don't have a secret back door trade-through button do you? :confused: What trading platform/broker do you use? We called ARCAEx's order desk to confirm and they maintain that ARCAEx does not permit trade-throughs in NYSE-listed stocks apart from the two exceptions above. They also said that PNP orders (the ARCAEx order type you may be referring to that routes through the NYSE) are cancelled automatically if executing them would cause a trade-through violation. If you've got a way around it, I'd love to know!


    Is there a chance that the perceived ARCAEx trade-throughs may be due to one of the following:

    * 100-shares orders (which are "exempt"); or,
    * The balance of an ITS order--that was bigger than the best ITS bid (or offer as the case may be)--being executed at the next best price?
    * An order declined by an ITS participant that was automatically re-routed to the next best price before the ITS participant updated his quote?
     
  5. May be the NPNP?
     
  6. The head of Arca testified that NYSE violates the trade through rule roughly 75,000 times per week