AmazingIndustry, you clearly know what you are talking about. However I want to point out that I think you are mixing together two different things: - Price/slide, PEP etc orders that are happening at exchanges. That's a well documented shortfall of regnms, that's ironically was introduced to protect investors. - Internalization, when an order never makes it to the market, by being executed with a 1/1000 cent price improvement. There are not the same things, more over the are used by different firms. First one us used by HFT, second one used by Internalizers.
Hi, I never mentioned internalization that's why I could not have possibly confused or mixed it up. In case you mean with "internalization" an off-market cross: If you can get a fill through off-market internal cross then fine that can only benefit both sides, but I am not talking about off-market trades, I am talking about traded on the national exchanges.
Ok, but the order described in the first post was clearly internalized. So it was indeed off market, and while you are saying that everybody benefits from it, the author believes that his fill was stolen. In any case, it's not correct to blame HFT for it.
I think you are mixing up things: OP clearly said his order was routed to Nasdaq. He was best bid at 17.10 when two other counterparties exchanged goodies at 17.1001. This has nothing whatsoever to do with off-market crosses. It has everything to do with my current market criticism couple posts ago. Internal market crosses generally at the very least get you filled at your price or better. Thats why internal crosses are used if a market can be made (plus obviously for the fact that the brokerage benefits)
>> He was best bid at 17.10 when two other counterparties exchanged goodies at 17.1001. Yes, I totally agree with your description. OP was at the bid at Nasdaq at 17.10 while two other counterparties exchanged goodies at 17.1001 *off market*. It was offmarket since by reg-nms exchanges are not allowed to execute off at subpenny increments. Now, you think that these two other parties are happy, since one of them wanted to sell to OP at 17.10 but in fact got 0.0001 better price. May be so, but OP is not happy, he rightfully believes that his fill was stolen. The only reason someone filled the seller at 17.10001 is that OP had a bid at 17.10. So he participated at the price discovery and he should be rewarded for it.
There are several flaws in your statements: a) If it was truly "off market" then there is no requirement to report those to Nasdaq or anyone else in real-time. Thus, if it was a true off-market cross, OP would have never seen it on the screen or times&sales. b) most other "exchange venues" are registered exchanges, including BATS, they are afforded the same privileges than regular exchanges, thus I do not include them when I use the term "off-market". Thus I argue, the 17.1001 trade OP has seen was NOT an off-market cross. c) an internal off-market cross is something where your broker finds two willing internal customers, one wants to buy the other wants to sell and both agree on a price and the shares are simply swapped before the orders ever hit the market. I cannot comment whether IB does it, and in how far it is legal in which markets but its a very common practice within Investment banks either between internal desks or between clients. If its between DMA clients certain rules need to be played by but its generally possible. This is not what happened to the OP.
>> If it was truly "off market" then there is no requirement to report those to Nasdaq or anyone else in real-time. Off market trades must be reported to TRF (Trade Reporting Facilities) and according to OP that's where he have seen the trade.
but not the instance they happen, its not even possible. Think about an OTC derivatives trade where counterparties exchange the underlying at an agreed delta in order to have their position initially hedged. The off-exchange cross is surely not reported exactly when the trade happens, its technically impossible. I cannot talk about specifics about Nasdaq listed stocks but I can assure you I have worked long enough in this industry to know what I am talking about: Off-market trades cannot be reported the second they are agreed upon. And because most other venues to my knowledge where American stocks trade are regulated under exchange rate regulations they cannot offer trading in sub penny anymore, so I still do not follow your explanation here.