I just received an email from Cybertrader that states: "Please be aware that the NYSE & AMEX prohibit the unbundling of ARCA/NYSE/AMEX Listed round lots for the purpose of entering odd-lots. This notification is to inform you that your account xxxxxxxx exhibited this behavior on 08/01/2007. We understand you may not have been aware of these regulations. However, should this type of trading activity continue, your account may be subject to order-entry restriction to ensure compliance with exchange rules." I called Cybertrader and asked them what this means...and they simply stated that the exchanges didn't like me buying/selling in odd-lots and complained to Cybertrader about it. The representative said that it was a pain in the ass to deal with odd-lots and so they didn't want to have to deal with it. I think it's ridiculous, since most orders are matched electronically anyways...and I almost always rout my orders through the ECNs (ARCA or Instinet (NSDQ)) what difference could it make to take my order? Also...I've been trading the same way for years...only using odd-lots with high-priced stocks ala GOOG, what did I do to suddenly trigger such a warning? Is this a new rule? Anyone else get this warning before?
This is actually an exchange regulation to prevent people from certain practices. Surveillance by broker is required by the regulation. Better to get a note from your broker than from the exchange, else I'd say you should probably be calling your securities lawyer! See e.g., the most NYSE regulation memo on the topic (07-60): http://apps.nyse.com/commdata/PubIn...emosNyseCom/85256FCB005E19E88525730900504E4D/$FILE/Microsoft%20Word%20-%20Document%20in%2007-60.pdf
Oh this is not a new rule, but surveillance systems have steadily improved (though sneakier circumventions have also steadily been developed). e.g. NYSE Regulation memo 04-14 from 2004 was one of the earlier reminders of the rule: http://apps.nyse.com/commdata/PubIn...emosNyseCom/85256A71006FB86385256E5F004FFFD0/$FILE/Microsoft%20Word%20-%20Document%20in%2004-14.pdf The more recent memo is just another reminder and adds interpretative clarifications.
thanks for the reply rayl. I can understand why they would impose a rule on brokers or big institutions that try to hide big orders by unbundling big orders into small ones. But for a small individual trader...what could possibly be the harm? The stock they told me I broke this rule in was GS (Goldman Sachs)...it's not like a stock like that was lacking in liquidity that they could find enough shares to cover my buying/selling. It just makes no sense to me.
<shrug> I don't know what to say. If you research far back enough you can probably find the original rationale statement, as well as public input submitted during the comment period, when the rules were first adopted. I am not familiar with this level of detail. Anyway, the rules don't say they apply only to institutions. Actually institutions are not supposed to ever use odd lot orders except for program trades. All I'm trying to say is, don't blame your broker. Rules do get change if there is enough input suggesting their change, but I'll leave that battle for you to undertake! (I personally rarely ever trade odd lots except to get rid of them -- I'd be happier if they just didn't exist bec the only time I get them is when an ECN fill gives me like 8 shares out of an order for 500!)
I'm not blaming my broker. It explicitly said in the email that it was the NYSE/ARCA/AMEX issue. What I don't understand it why they don't just prohibit odd-lots if they don't want it ala the OIH. If you attempt to enter an odd-lot order for the OIH..it just tells you that you odd-lot orders aren't allowed. Why allow me to enter in the order...take my order...and then email me a warning? Anyways...it's not something I do often enough to really affect my trading...just frustrating not knowing why all the sudden I get a warning after so many years of trading the same way. thanks for the help anyways.
It's a legacy issue on the NYSE/AMEX. They have a shitty old system that fills odd lots on the last print instead of the bid for sells and the ask for buys. People take advantage of this in fast markets when the quotes are locked and enter hundreds of orders (BUY 99 MKT, BUY 99 MKT, etc) and get fills that they don't deserve. NYSE member firms know that the market surveillance people are so stupid that they can pretty much go after you for anything and win, they are probably sending everyone an email. What blows is that even if you send the order to an ECN, they are paranoid as well because they may have to route the order to the NYSE, hell they are probably flagging OTC stock odd lots too. There are rumors of the rule going away, but this may not happen until the NYSE implements their CCG (common customer gateway) which probably wont happen till 2008.
Yes have been dealing with this for a few weeks now. All of the sudden it seems like the Specialist is getting all pissy about odd lots. Personally I hate them and they are a pain in the ass, unfortunately in a days worth of trading I get them all the time. Don't know what the catalyst for the stricter enforcement was but seems like we got put on notice shortly after Reg NMS kicked in.
Thanks for the reply Strategery. That explanation makes a lot more sense than the crap Cybertrader is trying to feed me. Hope you're right about the rule going away soon.
Automate...so are you still trading the same way or are you adapting in some other way? If you're trading the same way...are they continually sending you new warnings? My broker Cybertrader warned me that if I got more warnings...I would be subject to order-entry restrictions...which I guess means they would cripple my trading platform to only enter round lots.