I've been robbed

No, I'm not saying that at all. I agree that the current trade bust rules are not the best. They should have wider bust criteria which would entice more liq providers to rest orders which is really what the market needs. They also need to have clearer guidelines about when they will and won't bust (news, rumors, etc), and always adhere to them.

My argument is against the guys saying that no trades should ever bust, which is a ridiculous statement imo.

 

Big banks gets "fat finger" bust protection? Who else gets it?

 

Perhaps a stop order type with a range can be used. I don't know of any broker that offer such a service.

For example, I long a stock at $100. I have a stop order of $10-30. When stock drop $90, stopped is triggered instantantly. However, this stop is limited to no more than $30 loss, if the stop can't executed before it drops to $70, stop doesn't get executed.

Then there is a decision if to execute the stop order when price rises about $70 again.

 

The question is, how do you ensure the traders follow the guideline? Also, how do you stop someone from exploiting loophole in the guideline? In a perfect world where everyone follow the rules, busting trade should be fine, but we are not living in that world.

Also, just like everything else, busting trade is not free. It will cost everyone.

 

Interesting story, Ghost of Cutten, thanks. The difficulty in guessing the bustability of a trade a priori (regardless of how "well defined" the rules are ) might also have contributed to a couple of the really high freq shops pulling out of the market on May 6 -- very easy to go bankrupt on bad busts the exit trade of which is not busted, as the profit margins for these shops are razor thin (I'm guessing ).

Unless the bustability of a trade (that is, whether a requesting party of either or both sides can, upon request, bust it with total certainty) is knowable using only information available before the trade, it's always going to be ambiguous and contribute to the reduction of liquidity at the times it's needed the most.

Things have improved a lot in recent years with the "harmonization" of the guidelines across exchanges; my hope is that whatever new rules they come up with in response to recent events will improve things even more.