I've been reading the ET forums for a while and it seems like everytime IB is mentioned a rep comes on and comments or answers questions. This looks like it'd be a good place to see an IB rep make a comment.
I'd make a comment but I don't have full details of the situation. From what I gather, the confusions stemmed from the exchange passing along a number of conflicting reports. our reps relayed the information to the best of their abilities given the information they had. I think in the end there were over 170 different stocks that had busts and 50 or so others that had price adjustments. Without further detail, it doesn't make sense for me (or steve who is also in HK) to speculate what occurred.
How much at risk can you be when you have gotten a 15% off print just out of the blue? If the stock eventually trades near your entry price, then it becomes non-bustable. They aren't going to bust on you if the stock is already trading where they are saying they want a bust. If you get a 15% gift, then just assume it is going to be busted. Put in a breakeven stop. Wait until settlement. Then exit the position if it hasn't been busted.
IB is a broker. We are not a participant (except as agent) in any trade. We represent the client to the market. We have no vested interest in whether the bust creates a positive or negative impact as we act as a pas-though agent from the exchange in these matters. For the record, we are equally unhappy with the inconsistent policies and real-time handling of by many of the ECN's and exchanges, especially when the trade cancellations are large events (for example Friday's NASDAQ activity). Single transaction busts are usually reported by the exchange/ECN to the broker within a (somewhat) reasonable time period. When there are large scale events, the decision making process at the exchange/ECN is often prolongated and the decisions can come though both delayed and in waves (i.e. some trades announced at T+1hour, others at T+3 hours, etc). This was the case in the recent NASDAQ event.
IB rep- It makes a lot of sense for you to say you'll get the facts and issue a statement though. Personally, I dont care if a broker makes a mistake, as long it is equitably corrected. I've had brokers , mistakenly, stick 20, 30 even 50 lots into my account and then issue a margin call - but once we ID the mistake, its all fixed within hours, if not minutes. And again, I'll say that anyone who has a problem with a broker, ANY BROKER, where the problem is not minimal, should seek the help of an experienced attorney and not look for help/guidance on an intenet chat board.
Official Response: IB's policy regarding busts is as follows: If an exchange calls and requests a bust, IB ALWAYS says 'no'. This is for the benefit of our clients. You can assume nobody calls and asks to break a trade where they are the winner (i.e. the IB client is a loser). The exchanges then send the trades to a rulings committee which may decide to force the cancellation. The exchange then calls us back and reports if the trade has been ruled a mistrade, in which case we report it onward to the client. If an IB customer requests a trade cancellation, we call the exchange. We never evaluate whether the request is reasonable or success in the getting a cancellation is likely, although we may provide the IB trader an indication based on our previous experience. Nevertheless, we always pass the request through. If there are IB clients on both sides of the trade, many exchanges (especially ECN's) will back away from the evaluation process and force IB to make the decision. IB's policy is to follow the exchange's posted or practiced guidelines to the extent possible, i.e. we try to substitute an equivalent decision making process. Our policy is posted on our website under the ContactUs/Service/ErroneousTrade menupoint. Please note, we do not want to be in the decision making position. However exchanges occasionally force us into that role because it gets this messy issue off their plate (at least that is my personal view). What we DON'T do: We do not evaluate cancellation decisions based on how good the customer is. We do not filter IB client requests This may not be 100% complete, but it covers the main points.
I believe that ALL participants in markets should have the same risk with regard to execution errors. If I hit the wrong key and enter a trade in error, I have to work my way out of the mistake; I can't call for a "do over". Institutions and exchanges should have to deal with mistakes in the same way an individual does. Could that cause a catastrophic loss? Certainly. But so do hurricanes for insurance companies and they manage to deal with them. I think a means of insuring institutions and exchanges against mistakes is needed, so that all trades are final as executed. If a mistake is made, seek compensation from your policy issuer.
Equaly interesting to ask, is that whoever sold off the stocks, if the market had tanked, would they have busted the trades at higher prices and subsitituted lower prices?
You always say "no" to a bust request even if it would be a winner for your client? That's your client's call to make, in my opinion. You may open yourself to legal trouble, by not contacting the client about his trade.
Obviously, we check. We need to verify we even know the trade they call about. We have never, not once, seen a bust request wherein agreeing to the request would be profitable for our client. This would qualify as a charitable act, and trading is not (in my experience) a charity business. Ask yourself: you have a winner trade. Would you voluntarily invest the time, as well as forgo the windfall revenue, to give the trade back? On European exchanges, the exchange will occasionally call to inform us that a trade looks like it was executed at a bad price. In these rare cases, we contact the client to ask if he/she wishes to break tthe trade. The decision is not always clear since many exchanges impose a fee on the erroneous party that may be greater than then pnl error. In all other cases, the decision is imposed by the exchange so IB has no involvement other than to report the fact.