Orders executed above the ask and below the bid

Watching the tape I can see sales that are being executed above the current ask and below the current bid.

Could someone please explain to me the circumstances under which this happens.

Why would a market order get executed at any price other than the current ask/bid?

Thanks in advance.

 

From my (limited) equity trading knowledge (It has been a while since I traded equities professionally) I would say that the most likely explanation is that what you see are actually trades that were executed directly between parties and were reported late. (As all trades have to be reported to the exchange.)

Pls correct me if I'm wrong... like I said, it has been too long

 

lots of those are Third market and I see alot of em on NASD

 

You may be behind other orders that took the entire size at the current bid or offer. That is the danger of market orders, you don't know what your fill is going to be.

 

Thanks Gimp. Will do some reading up on third market.

 

lets set up a situation on some stock ABC.
ask 50.02 - 15000
ask 50.01 - 10000
bid 50.00 - 20000
bid 49.99 -30000

someone wants to buy 20000 shares NOW, so they send in a market order for 20000 shares. they'll get 10000 at 50.01, and 10000 more at 50.02. thats how orders are executed above/below ask/bid.

 

Thanks for your replies but this isn't how it works. Using auspiv's example, the 20k market order would actually be split and the sequence of events would be:

1. Sale of 10000 @ 50.01
2. Ask lifted to 50.02
3. Sale of 10000 @ 50.02

The buyer would get 2 partial fills resulting in an average purchase price of 50.015. The tape would record 2 separate sales and each would have occured at the prevailing ask price at the time the transaction was processed.

What I'm interested in is those sales which occur above/below the prevailing ask/bid when the transaction occured.

 

dark pools?
http://english.capital.gr/news.asp?id=749154

 

Thanks. I did think that this might well be down to the late reporting of dark pool transactions.

The SEC really need to put in place some sensible reporting requirements.

Thankfully, it looks like they are finally realising this...


SEC hints at regulation of dark pools

 

Indeed, the current reporting requirements are a joke. And given the amount of volume now going through these platforms, any idea of efficient price discovery is rapidly going out the window.