Please show me where it is written that SEC Rule 10a-1 does not apply outside of regular trading hours.
Obviously you know the rules better than I. However, the fact that I can still short on a "downtick" (if you can call it that in extended hours trading) via INET irregardless of ARCA's last print still shows me that at least INET thinks the uptick rules do not apply in extended hours trading. I can still short on the downtick, I just can't publicly display my quote on INET in order to entice someone to get me short.
So ARCA will not allow you to short NYSE stocks on downticks, but INET will allow you to do so outside of regular trading hours. Could it be that ARCA is right, and INET is wrong? Could it be that the problem is that INET is not in compliance with SEC Rule 10a-1? How certain are you that INET will allow you to short NYSE stocks on downticks outside of regular trading hours? How long ago was the last time you succeeded in doing this on INET?
Well I guess it depends on your point of view. For example, I don't think there should be an uptick rule at all, no matter what time of day it is. Therefore, if you are talking about "the way it should be", I believe INET is right. If you are talking about the way it legally is, I don't have enough background to know if the SEC Rule 10a-1 applies to extended hours trading. I think INET is interpreting the rules differently than ARCA when it comes to extended hours trading. Whether they have a legal foot to stand on, I am not sure. As of 2 weeks ago, I am positive INET allowed shorting on downticks in extended hours trading, if you consider extended hours trades to be "ticks." If you don't consider extended hours trades to be "ticks," then INET also had downtick restrictions (restriced shorting to the previous close or higher). Again, I don't know who is legally right, but I know in terms of trading and ease of getting short, ARCA was always more restrictive in its interpretation of uptick policy. As of now, I am not sure that INET allows shorting on downticks in extended hours trading, but I don't see any reason for a change on INET's behavior in this regard. The rule change on quote dissemination should not restrict INET's orders. My short orders may be invisible to the public now, but they are still present on the INET book and thus if I did get filled, I would be skirting ARCA's uptick policy (but not INET's). Now, that being said, I have not yet been filled on one of these hidden orders so I cannot conclusively tell you that INET is still allowing this. However, the fact that the quote does not show makes me think INET is not repricing it to avoid ARCA's uptick policy. If it did reprice the order, then it would show up in public limit books.
You seem to be saying that the 'hidden' order is shown in inet, but not level 2. I use IB now, not the kind of daytrader software I used to use back in the day, but 'hidden' orders were not seen on island. They weren't seen at all by anybody. 'Subscriber' orders were seen by island, but not level 2. Maybe you don't really have an order in at all if you don't see the order and have not seen an order hit or taken.
Hidden orders cannot be seen on Level 2 nor the INET public limit book. So if people bid at my price they would get filled magically, but since no one knows the order is there, I most likely will never be filled.
After some time doing this, I have come to a belief that there is just as much chance that someone would be "scared off" by your offer as there is that they would be "induced to buy" from your offer, if they could see it. After all, most use hidden offers so as not to stop buyers. imho
I think, based on what you said, that INET probably would let you short NYSE stocks on downticks outside of regular trading hours, otherwise, your orders would have been rejected back to you. I think this is suggested by the fact that it seems your short sale orders are sitting on INET and working but hidden. Recall that INET was recently purchased by NASDAQ. NASDAQ may well have reasons for making INET function differently or less usefully than was the case before the purchase. NASDAQ market-makers trade NYSE-listed stocks through NASDAQ's SuperIntermarket facility, which is in direct competition with NASDAQ's INET. But it seems that the ability to short NYSE stocks on downticks outside of regular trading hours continues on INET, as demonstrated by your orders not being rejected back to you. The new Regulation NMS makes it illegal for one market center to display a quote locking or crossing another market center. This prohibition, against locking or crossing quotes, will be phased in starting on June 29,2006. INET has jumped the gun and implemented the prohibition in advance of the legal requirement to do so. Perhaps NASDAQ determined, after it acquired INET, that it would be in the best interest of NASDAQ to make INET less useful. Perhaps NASDAQ market-makers will benefit by making INET less useful. Perhaps this is their reason for prematurely implementing the prohibition against locking and crossing quotes.
Yes, you appear to be correct. In a perfect world for me, if I crossed the market using INET, it should not submit that quote to the national market, but yet make it visible on its internal book. However, I don't think it has that capability.
I believe INET still allows a violation of the short-sale rule in that it will allow you to short down to the previous closing price (or perhaps a tick above it when that price was not a 0+ tick), as long as it does not cross ARCA or BRUT, regardless of the SHO-list category. BTW, BRUT initiated the same "hide instead of cross" behavior at about the same time, I believe. AFAICT, this behavior is no different at IB than elsewhere. I've never seen evidence that IB does any sort of enforcement of the tick test, nor should they, since the exchanges and ECNs all handle it themselves in various ways. That is, last time I checked, you could send an order that does what I referred to in the first 'graph. spr: Your beef is with the law, not with INET or ARCA. Reg SHO definitely clarified when the various rules apply to which stocks, including pre- and post-market. You should read it. Different ECNs have chosen to implement those rules in changing ways since the rule went into effect. Hopefully, we'll be done with all this silliness some day, though, as usual, the SEC can't get their act together to study the results, and have extended the pilot until August 2007