Orders executed above the ask and below the bid

Discussion in 'Order Execution' started by ScoobyStoo, Jun 3, 2009.

  1. 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.
  2. H2O


    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 :D
  3. gimp570


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


    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.
  5. Thanks Gimp. Will do some reading up on third market.
  6. auspiv


    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.
  7. 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.
  8. zdreg


  9. 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
  10. 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.
    #10     Jun 4, 2009