What kind of size are you trading on these busted equity trades? Isn't everything under 1100 shares on the the NYSE an automatic, electronic execution?
Some time ago, I got a really , really funny print on an ECN trade (market hours). They never caught it. I booked.
Same happened to me, but someone with the right connections must have been on the other side. They caught it and busted the trade. It's a shell game. The exchanges (and especially ECNs) appear to bust trades whenever an influential party requests it. The only good thing I have to report is that IB handles this kind of sleezy tricks quickly and efficiently, they also promptly refund your commission if the trade is busted. Of course, they don't just eat the loss for you. If you want a broker who does that you have to pay higher commissions.
I've seen it happen a number of times and every time, it was because of either a "clearly erroneous" trade or trading in a halted stock. Clearly Erroneous meaning WAY outside the market. I had one trader buy a stock for $54 when the market was something like 74 x 75. This was clearly erroneous and I've only seen it happen on the ECN's. They all have a "clearly erroneous" rule. You have to watch out for getting filled on something like this because it's 99.9% sure that the other side is going to contest it. I've also seen it on the other side and helped the trader to contest it and get the trade busted. If you see something like this happen in your favor, just sit on it. If after 3 days it hasn't been busted, close the position and take the money and be happy with it. But more than likely, it will be busted. If you're on the losing side, call your broker and immediately contest it. I've seen it happen in a halted stock. For example, the NYSE halted the stock, and it took the ECN a minute or two to get around to halting it and the trader did a trade in the interim. It got rejected, but the halt was still in place, so he hadn't had a chance to put in a closing order and no harm was done.
I used to arb odd lots before and after hours between redi and arca and isld. Don't laugh, it was free money. Redi used to accept odd lot orders, but not match them with the market on arca and island, so they would just sit there. You would only know they were there if you had the redi order book up on your screen. At 4 o'clock every afternoon, I used to open about 25 redi books on one screen and look for odd lot bids or offers. I might see 50 shares of vrsn bid for 204, and at the same time see the same stock offered at 200 on island. Click, click, $200. This is an extreme example, but I did thousands of trades per month, sometimes for a sixteenth on 50 shares, sometimes for multiple points, as with the verisign example. One day, I see 50 shares of something like brcd offered at say, 150 on redibook, and the market is actually 250. I bought the 50 shares $100 below the market. I did not offset the trade because I knew there was a 99% chance it would bust, but I figured, maybe the guy shut off his computer and left town for a few days, so what the hell? Anyway, the phone call came within about 15 minutes from IB to bust the trade. That was back in the day of $200 plus internet stocks and fractions. The game died pretty quickly in spring of 2001.
Quote from cashonly: ... I've seen it happen in a halted stock. For example, the NYSE halted the stock, and it took the ECN a minute or two to get around to halting it and the trader did a trade in the interim... There's a problem that occurs with NYSE stocks, though, particularly during the pre- and post-market sessions. The problem is that the ECNs (at least Instinet) respect the halt time that NASDAQ dictates, not the one issued by the NYSE. This apparently occurs because the whole process is manual. The company calls the NYSE to halt the stock, they call downstairs to have it pulled from the crossing session, and someone then manually tells the NASDAQ about it. NASDAQ then issues their own halt. Meanwhile, the news may already have come out, and people get whacked on the ECNs, defeating the whole purpose of the halt. This happened to me on January 22, with the after-market news from TXN. TXN called the NYSE around 16:29 (they don't record the seconds), at which point they pulled it. The first headline hit the wires (Reuters, in this case) at 16:30:29. NASDAQ didn't halt the stock until 16:30:40, 11 seconds later, during which time thousands of shares traded on Instinet (including me getting short 700 at what turned out to be about a buck too low :-(). NASDAQ refused to adjust their halt time, even given the timeline described above, and Instinet refused to honor the earlier NYSE halt, even though it was clear that they should have done so in order to ensure integrity of the market. Of course, the primary problem is that TXN released their news such a short time after telling the NYSE, which wasn't enough time to get it halted everywhere. I wish the issuers would get this right, and that the NYSE would remind them about the necessary time frames. Nobody would give a good reason for their decision, other than "it's policy", as usual. It's too bad that there is no immediate means of review of these types of bad decisions. The best you can do is complain to regulators, but this process takes so long, and so rarely produces any results, that most people (including me) don't bother - and the bad decisions just keep coming. Writing about this has gotten me riled up about it again - maybe I'll go through the trouble to write to the parties involved.