Price Improvement and 2 min rule?

Discussion in 'Trading' started by ortega, Aug 30, 2003.

  1. ortega

    ortega

    I was reading a thread on this site and came across someone stating that in order to have the potential for price improvement, you must have your limit order posted for at least 2 minutes.

    Example:

    NBBO 35.75 - 35.85

    Say I think market is strengthening and going to rally; the .85 offer is being taken fast. So let's say I am long at 35.65. I post an offer at 35.90 just as I see this tape action taking place. Let's assume now that there really is huge buying pressure and the specialist moves the stock up to offer at 35.97 to find enough stock to fill this order. So from what the person was saying in teh post I read, I wouldn't get price improved if he prints at 35.97 since I didn't have my order out at 35.90 for at least 2 minutes. Hmmmm..... I've never had this happen to me, but I guess I am going to be aware of this and actually try it to see what happens. I have been price improved a good amount of the time, but thinking back, I can't remember how long my order was out before hand. I just don't understand how a specialist could print at .97 when I have an order to sell at .90, regardless of when I put it in, as long as I entered it before he moved up to .97. I do realize that if I wait until he moves up to .97 and then post an order to sell at .97 that I might not get filled since I would be at the end of the line in offering the .97 stock and there may not be enough buying to take my offer.

    Hopefully I have been clear in my question here which is:

    Do you have to have your limit order out for at least 2 minutes to get price improved?

    Thanks!
     
  2. Officially the specialist is not obligated to fill your order or even post your order if you're the inside bid/ask unless your order has been in the market for 2 mins. However, most of the time you'll get your order posted or get a gap fill if you're under the 2 mins.

    It depends if the specialist needs your shares in filling the order flow. For your example, if the market is moving up quickly, and he gets a big buy order that requires him to spread the book, he'll batch all the offers and print it at the .97. Because the market is moving fast, if you submit your order less than 2 mins and he's already batched the print, he's not going to readjust it to fill all the late orders coming in unless it's in his best interest to do so.

    DNAJ65000
     
  3. ortega

    ortega

    Alright, this is new info. I have seen at times that the specialist will not show my order if it narrows the inside market. However, if I understand what you said correctly, if my limit is in the market for less than 2 minutes, and he prints the offer, then 'he doesn't have an obligation to fill me even though my offer price is lower?'

    Example:

    30.05 - 30.15

    I offer 30.10 and 1 minute later he prints at .15 and I don't get filled. The only way that I can see this happening is if there are offers that were entered even lower than mine at say 30.00 because the person really wanted to get out of the trade, but for whatever reason the specialist improved the price to .15 because it was in his best interest to do so. I have entered orders like this before and the specialist has filled me at his offer, but if there is not stock ahead of mine lower than my price, I just don't see how he can print .15 and not fill me. Doesn't the order flow priority go price first, then time, then volume?
     
  4. dis

    dis

    Where do you think the NYSE got $139,500,000 to pay its CEO Dick Grasso?
     
  5. ortega, I don't think knowing the exact text and interpretation of the rules is what you should focus on. Just experiment with limit orders until you get a feel for how it works. My experience lately has been the following: If there is a large print a few cents away from the market and your limit order "should" participate in it, then the probability that it will do so increases from about 10% to 50% within the first 20 seconds that your order is live, and from 50% to 95% in the time between 20 seconds and a minute or two after order submission (or modification, for that matter).

    But it also depends on the stock.
     
  6. stevebec

    stevebec

    Are the NYSE rules available online anywhere?